Being Worthy: Creditworthiness Remains Elusive for Many

One of the big misconceptions about financial literacy in America is that black people are predisposed to poor money management. Unfortunately, a long history of discriminatory lending and banking practices that target non-whites is often overlooked by those who tout such theories.

From 1933 to 1968, for example, American banks denied black Americans access to financial services in a practice known as redlining. Although this practice is illegal today, it had catastrophic and lasting results and forced black families to rely on high-fee financial products such as payday loans and loan sharks to get quick cash.

Without bank accounts and access to loans to buy homes, African Americans faced the opening of what would be a wealth gap that spans generations.

Additionally, credit scores — the three-digit number associated with creditworthiness — impact nearly every facet of our financial lives and longevity, but remain low for Black Americans. Credit scores were created in 1956 by Bill Fair and Earl Isaac – the name FICO is an amalgamation of their names (Fair, Isaac and Company).

But just as discriminatory, FICO scores don’t take into account income, savings, utility bills, employment status, or debit transactions. Instead, FICO uses data from individual bank accounts, mortgages and savings — all of which black people have in lower numbers thanks to redlining — to generate a score. When we consider that black homeownership rates are 30% lower than whites, it only adds to the wealth gap if apartment and utility bills have no value in the rubric .

Credit scores are closely tied to a person’s ability to become wealthy and financially successful in the United States, as scores often determine eligibility for loans, apartment rentals, and even jobs.

A low credit score can also result in the loss of job opportunities.

Carmen Perez, founder of Make Real Cents, noted in a recent Business Week article that she had a job offer rescinded due to negative marks on her credit report.

“At the time [the marks] included an overdue student loan. The salary I would have earned from this particular role would have helped me pay off my student debt faster, but that benefit never materialized.

So how do we become solvent in the face of seemingly stacked odds? Invest in your financial future by taking courses and reading books on how credit, loans, and repayments work.

Try products like Experian Boost, which launched in 2019 and helps you factor in rental payment histories in an effort to boost your credit score.

Find out if your area has legislation, such as New York’s Ending Credit Discrimination in Employment Act, that prohibits most employers from checking an applicant’s credit history to take hiring decisions. If this legislation is not active, contact your local representatives for assistance.

In this quick guide: Get set, get set, get set! we offer some tips and information on how to navigate the loan system and ways to keep your sanity while you do it!

Read, learn, grow.

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