Although African-American households are in less debt today than they were in 2008, during the Great Recession, they still face unique financial strain and more severe consequences from their credit card debt, according to a new report (pdf) by the NAACP and Demos, a public policy organization.
The report, “The Challenge of Credit Card Debt for the African American Middle Class,” states that approximately 42 percent of African Americans households in debt are borrowing simply to make ends meet and to pay for basic expenses, such as groceries, rent and utilities.
Approximately 99 percent of African Americans who racked up credit card debt by starting a new business reported difficulty paying off those debts. Only 80 percent of whites had this problem.
According to a press release, members of the African-American middle class report worse credit scores than their white counterparts. African Americans were also more likely to cite late student loan payments and credit report errors as reasons for their low credit scores. For white households, the main culprit was late mortgage payments.
Blacks are more likely to be targeted by debt collectors and have their credit tightened. Only 50 percent of middle-class white households had this problem, compared with 71 percent of black ones.
Bad credit has been known to follow people through all aspects of their lives. Bad credit could deter potential employers from hiring an otherwise good candidate, even though, the study notes, poor credit and poor job performance are not linked. According to the study, hospitals and health care providers sometimes pressure patients into putting medical bills on credit cards instead of leaving the charges up for discussion. In addition, arranging for basic utilities, such as heat, water and electricity, sometimes depends on credit reports.
The fact is, credit card debt and bad credit affect the black community disproportionately. “Much of the disproportionate impact of credit card debt can be attributed to the fact that African Americans have fewer assets than other households to fall back on in emergencies,” Catherine Ruetschlin, report co-author and Demos policy analyst, said in a press release. “Unlike white households, more than half of African Americans’ wealth is held in housing, which was devastated in the financial crisis. We’re also seeing African Americans turning to credit cards to cover their household finances as incomes continue to stagnate and unemployment rates hover around twice that of white workers.”
“African Americans rely on credit cards to make ends meet and invest in their futures because they have faced, and continue to face, persistent structural and economic barriers that limit their ability to create wealth and build a solid credit history,” Dedrick Asante-Muhammad, report co-author and senior director of NAACP economic department, said. “And when African Americans are engaging in the credit market, they are more likely victims [of] predatory and discriminatory lending, which further increases their economic insecurity. Unless we want to maintain the nation’s historic and contemporary racial economic divide, we must confront the reality of today’s racial inequality and advance reforms that address these disparities, fairness and security around consumer credit.”
It’s not all bad news. Thanks to the 2009 CARD Act, which required credit card companies to adhere to fair and transparent billing and fees practices, African Americans have been able to pay back debt faster and save money by avoiding unreasonable charges. Since the CARD Act, 25 percent of black households have noticed a drop in interest charges on their credit card.