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![]() Burns, head of business development at CNote, a women-led community investment platform with a mission to close the racial wealth gap. “The credit system currently in place favors and supports those who historically have had higher education, higher-paying jobs and overall greater access to the resources and tools needed to demonstrate creditworthiness,” says Danielle M. This meant that 98 percent of the loans approved went to White Americans, which created the White middle class.”Įven though that kind of explicit discrimination is no longer in practice, thanks in part to legislation like the 1968 Fair Housing Act and the 1974 Equal Credit Opportunity Act, other types of implicit and systemic bias still have residual effects in the credit-scoring system. “From the 1930s to the 1960s, the federal government flat-out refused to insure home loans for Black people. “W e have a lot of legacy issues,” explains Khalfani-Cox. How lending discrimination affects creditĮven though the credit scoring system is theoretically designed to eliminate bias, a historical legacy of racial and socioeconomic discrimination still makes it difficult for certain groups of people – especially low-income Black Americans – to access credit. It can impact your access to loans, mortgages, apartment rentals and more. ![]() Tip: Your credit score affects more than just your ability to get a credit card. That’s why we’ve put together a guide to help you understand how race and credit interact, and how you can navigate the current financial system to build the kind of credit history that can set the foundation for a solid financial future. “They’ll use a check-cashing service or a payday loan, which means they’re borrowing money at a higher cost without building a credit history.”īut if you want access to today’s best credit cards, it’s important to know how to build good credit – and to understand the systemic and structural biases that might be a speed bump on your path. “Some members of the African American community, maybe because they’ve been burned in the past by bank fees or other issues, have chosen to opt out of the financial mainstream,” explains Khalfani-Cox. Black and Hispanic Americans are also more likely to be unbanked or underbanked, placing them outside the mainstream financial system that can help them build a positive credit history and a good credit score. ![]() Households in 2020, Black and Hispanic Americans are less likely to be approved for credit than white and Asian Americans. “All of these areas need to be plugged.”Īccording to the Federal Reserve System’s May 2021 Report on the Economic Well-Being of U.S. “There’s an access gap, there’s an information gap and there’s an advisory gap,” says Lynnette Khalfani-Cox, co-founder of The Money Coach and author of the New York Times’ bestseller Zero Debt: The Ultimate Guide to Financial Freedom. ![]() Although the credit scoring system is designed to be objective, studies have shown that people of color are more likely to struggle with credit than their white counterparts. Some might consider credit to be a “great equalizer,” since it gives lenders a set of parameters for determining whether a loan applicant can be trusted to pay back a loan.īut for Black Americans, the road to a good credit score – and the rewards good credit can bring – may not always be so smooth.
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