Blacks Are Part Of The ‘Credit Invisibles’ Being Un- And Underbanked

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July 11, 2014 ‐ By Ann Brown
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It’s a vicious Catch 22. African Americans need more credit to take advantage of economic opportunities, but they can’t get credit without being financially fit. And when looking at the American financial landscape, blacks are nearly non-existent because they’re more apt to be “unbanked,” “underbanked” or “credit invisible,” reports The Root. This affects the chances of blacks establishing credit and building wealth via homeownership.

The Policy Economic Research Council found that about 54 million Americans are “credit invisibles,” meaning that while they engage in such creditworthy activities as paying utility and phone bills in a timely manner, they are basically invisible to credit agencies. Credit agencies don’t consider those kinds of payments when calculating credit scores.

This can hinder blacks from doing some basic things, such as renting an apartment, getting good insurance rates, even securing a job. According to the Society for Human Resources Management, 60 percent of U.S. employers use credit checks to screen job applicants.

An amazing 8.2 percent of U.S. households don’t have a checking or savings account, making them among the “unbanked” who depend on check cashers or prepaid cards, which often target African-American and Hispanic communities. Then there’s the “underbanked,” which accounts for 20.1 percent of households who have a bank account but still must use high-interest, subprime financial services, such as payday loans, just to make do.

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These two  groups are dominated by blacks. “More than 55 percent of black households are unbanked or underbanked, the highest of any racial or ethnic group, and this means that a majority of African-American families don’t have access to affordable financial solutions,” reports The Root.

“African Americans were supposed to benefit from the deregulation of banks under [President Ronald] Reagan. That didn’t happen because of systemic, racially biased policies like redlining. Then it looked as if there would be great opportunities under [President Bill] Clinton for blacks to get into the credit system, but as the housing market expanded, African Americans became targets for subprime lenders,” Yale professor Frederick Wherry told The Root.

And while credit rating companies say they don’t consider race in their calculations as that is profited by federal law, studies show a consistent gap between the credit scores of black and white Americans. “Data collected by the Federal Reserve before the mortgage crisis showed that less than 25 percent of African Americans had top-tier credit scores, compared with 65 percent of whites. Today the gap is even wider,” reports The Root.

There are some possible changes afoot.  In an unusual bipartisan cooperation, Reps. Keith Ellison (D-Minn.) and Mike Fitzpatrick (R-Pa.) introduced the Credit Access and Inclusion Act (H.R. 2538). This act allows Americans to establish more-accurate credit scores by allowing cable, phone and utility companies to report information to major credit bureaus. Remarkably, this would reduce the number of credit-invisible people from 54 million to just five million.

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