Credit inequality contributes to the racial wealth gap

The wealth gap between white and black Americans is widening: black families now have 10 times less wealth than whites. Sen. Tim scott (RS.C.) thinks he knows why, and he’s trying to do something about it.

Despite all the the progress people of color have made over the past 50 years in America, there has not been much real progress on many fronts in minority communities because the underlying issues of racial inequality have not been adequately addressed. It remains more difficult for minorities to get the credit they need in everyday life, for example, making it more difficult for them to make large purchases, such as buying a house, who could help them build and transmit wealth.

Since the economic downturn of 2008, many Americans have had an easier time accessing credit. Restrictions have eased, allowing millions of people to buy homes and start businesses. The recovery has worked well for Americans in general – except minorities.

Today, minorities find it increasingly difficult to access credit, especially when it comes to mortgages. The homeownership rate among minorities is declining: Homeownership among white Americans is more than 30 percentage points higher than among black Americans, according to Trulia.

In addition, a new study found that African Americans and Latinos were much more likely to be denied conventional mortgages than whites, even when income, loan size, and other factors were taken into account.

Black applicants were disproportionately turned down, compared to whites, in 48 metropolitan areas. Latinos were turned away more often in 25 regions, Asian Americans in nine, and Native Americans in three. In Washington, DC, the study found that all four groups were much more likely to be denied home bad credit loans than whites.

Financial and Consumer News Journalist Jennifer Streaks

Source: Jennifer Streaks

What is happening is that persistent racial inequality has led to credit inequality.

The current model of credit scoring ends up eliminating many African Americans, Latinos and young people who are otherwise creditworthy, making them in effect “credit invisible”. The invisibility of credit leaves a person unable to access the necessities because, besides home ownership, credit is used when a person applies for health insurance, car insurance and even a job. When a person is invisible when it comes to credit, it becomes more difficult for them to get started or move on and take on life’s challenges.

“There has to be some other scoring model to judge creditworthiness,” Scott says. This is why he introduced the Credit Rating Competition Act, which would create an alternative solvency model that would include consistent payments for rent, utilities, and cellphones.

“With gentrification and the growing shortage of affordable housing, no one can afford to be ‘invisible credit’. Having access to credit is like having access to a better life and if minorities are denied that because of the current system, other means of ensuring access must be used, ”he says.

The three major credit bureaus, Equifax, TransUnion and Experian, found that data on civil judgments and tax liens was often reported inaccurately and was not updated enough to serve its purpose. When recorded on a credit report, this public information can be major obstacle to obtaining credit. The bureaus agreed to remove it from consumer credit reports and stop reporting it in the future.

Access to mortgages remains one of the most important goals of this process. “Home ownership has always been part of the American dream,” says Scott, “so it’s an opportunity to make the system fairer for everyone”.

The Mortgage Bankers Association agrees. “Strengthening competition and establishing a level playing field in the development and use of credit scoring models should ultimately result in more accurate modeling, which could potentially benefit a wide variety of poor borrowers. served, especially young people and African Americans and Hispanics, ”said Bill Kilmer, senior vice president for legislative and policy affairs.

There is a direct correlation between the widening wealth gap between minorities and white Americans and the growing gap in homeownership. The fact that so many white people own their homes is one of the reasons why Median net worth of white families is nearly ten times that of African-American families.

As Scott says, “It is imperative that minority applicants start to be more successful when trying to get credit. If a person is creditworthy, they should have access to credit at the same rate as everyone else. This is the only way we can all move forward. ”

Jennifer Streaks is a financial and consumer news reporter who has written for The Huffington Post, Motley Fool and Black Enterprise and has been featured on ABC, MSNBC, FOX Business and HuffPost Live, discussing the news of money, business and consumers. Find her on Twitter @jstreaks.

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