Access to Credit

Access to credit is essential to getting ahead in today's society.  Home mortgages and start families on the path to wealth building, small business loans expand the economy and create jobs, education loans provide key access to academic advancement, and credit cards allow for greater flexibility in spending.  All of these forms of credit, as well as the wealth they help create, also help cushion families against temporary economic shocks like illness, job loss, and natural disasters.

However, an analysis[1] of the most recent consumer finance data by the Washington, DC-based Center for American Progress has found that people of color have less access to credit than Whites, and pay more to access the credit they do receive.  In fact, the Center found that, "African American and Hispanic families are still denied credit more often than White families with the same income, and low-income families are more often denied access to credit than middle-income and higher-income families-even when low-income families apply for credit in line with their income and creditworthiness."  (Emphasis in the original.)  For example:

[1] Center for American Progress. "Access Denied:  Low-Income and Minority Families Face More Credit Constraints and Higher Borrowing Costs."  Christian E. Weller, August 2007.

People of Color are Denied Loans More Often

22% of loans requested by Black families and 18.1% of those requested by Latino families are denied, compared to 10.8% for White families.  In addition, from 1995 to 2004, White families saw a decline in the number of loans denied relative to the total number of White applicants, but Black potential borrowers saw their decline rate relative to the number of applications submitted increase 9 points.  The rate for Latinos was virtually unchanged in that time period.

People of Color are More Apprehensive about Seeking Credit

14.9% of Black and 11.9% of Latino potential borrowers report not applying for credit for fear of being turned down, compared to 4.9% of Whites.  In addition, 36.9% of Black and 30% of Latino families report feeling credit constrained, compared to 15.6% of White families.

People of Color Pay More for their Debt

People of color tend to have more expensive debt such as installment loans, credit card loans, and car loans, while a greater portion of White debt is of a less expensive variety, such as conventional mortgages and home equity loans.  People of color also tend to pay higher interest rates on all types of debt.

The Center for American Progress estimates that for every dollar of debt they owed, Whites paid 6 cents less than Blacks and 4 cents less than Latinos.  For a $100,000 loan, this means that Whites pay $640 per year less than Blacks and $400 less per year than Latinos to borrow the money.

This analysis does not even include the effect of predatory lenders, such as check cashers, which are predominantly concentrated in communities of color.  If the effect of credit from check cashers were added to the analysis, the results would be even worse.

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