New Report Finds Minorities Less Likely to Seek Credit After Years of Institutionalized Racism

Inside Subprime: September 25, 2019

By Jessica Easto

An investigation by the National Fair Housing Alliance, a DC-based nonprofit organization dedicated to ending housing discrimination, has found that people of color, and African Americans in particular, are less likely to seek credit from traditional financial institutions. The reason? Decades worth of discrimination by those financial institutions as well as the federal government.

According to the report, this discrimination often incites a “trauma-like” response similar to the one seen in those with PTSD. It’s a self-protective behavior that keeps people of color from seeking credit. This can have devastating effects on credit scores, which affects everything from eligibility for loans and rates on mortgages to rental choices and employment opportunities.

The report found that 60 percent of the time, people of color in better financial standing than their white counterparts were still offered higher rates on car loans, costing them thousands of dollars over the life of the loan—and that’s just one example.

Financial discrimination has deep roots. The report found that between 1934 to 1962, the federal government backed over $120 billion in mortgages, but because the Federal Housing Administration (FHA) employed race-based policies that openly discriminated against minorities, less than 2 percent of loans were borrowed by people of color. While white people were able to purchase homes that allowed them to accumulate wealth, start businesses, fund education, and pass down inheritances in the decades following the Great Depression, people of color were held back and their financial and business opportunities stymied. 

This was the beginning of a “dual credit market” that, according to the report, “fuels the racial wealth gap” and continues to this day. Being declined for a mortgage, for example, for no reason other than race made individuals distrustful of white-owned institutions, something that is often passed down from generation to generation.

Ricki Lowitz is the CEO of Working Credit, a Chicago-based nonprofit that helps people—mostly those of color—learn about the credit system and how to navigate it. She says that many of her clients are angry that they didn’t learn how the system worked sooner.

“We meet people who have been beaten down by the system,” Lowitz said. “In some cases, we are contradicting their parents and grandparents who have told them to stay away.”

Overcoming “their deep seated fear of credit,” according to Lowitz, is the first step to helping the disenfranchised improve their credit. The median credit score increased by 44 points for African American clients and 45 points for Hispanic clients who completed Working Credit’s 18-month program. 

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