Credit Invisibility Means Less Economic Opportunity in Black America

African Americans are more likely to be “unbanked,” “underbanked” or “credit invisible”—and it’s hurting opportunities for gaining employment, establishing credit and building wealth through homeownership.

A man uses an ATM at a Bank of America branch on April 16, 2014, in New York City.
A man uses an ATM at a Bank of America branch on April 16, 2014, in New York City. Spencer Platt/Getty Images

“I am invisible, understand,” Ralph Ellison famously wrote, “simply because people refuse to see me.”

He was speaking of the double consciousness that accompanied the burden of blackness in America more than 60 years ago. But according to Yale professor Frederick Wherry, this conundrum is not just social and political but also economic—and that sense of invisibility persists in the 21st century.

It may come as no surprise that in the nation’s supposedly colorblind age, access to income, credit and financial solutions remains riddled with racial inequity—and those on the losing end are disproportionately African American.

According to the Policy Economic Research Council (pdf), approximately 54 million Americans are “credit invisibles”—which means that they engage in creditworthy activities, such as paying utility and phone bills on time, but are effectively invisible to credit agencies, which don’t take into account those kinds of payments when determining credit scores.

And the result has harsh real-world consequences.

Renting an apartment, qualifying for reasonably priced homeowners and car insurance, getting a job if you’re unemployed and securing a promotion if you’re already working are all things that can depend on your credit score.

An equally disadvantaged group is “unbanked” (pdf)—the 8.2 percent of U.S. households that don’t have a checking or savings account and must rely on check cashers or prepaid cards, of the variety that are notoriously marketed in African-American and Hispanic communities. Another 20.1 percent are “underbanked”: households that have a bank account but are still forced to use high-interest, subprime financial services, such as payday loans, to make ends meet.

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.

Wherry believes that this is the social-justice issue of our time, but he says that not enough politicians, economists or media figures are talking about it.

“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,” Wherry told The Root. “They were deceived like millions of Americans. But the difference is that black families were already at a historical disadvantage—so [they] had much more to lose.”

Wherry explained that what makes it difficult to frame these conversations in a social-justice context is that our society considers creditworthiness a matter of individual responsibility. “The African-American community is being exploited, but the story that is told to them is that [they] deserve the higher costs of services because they’ve been irresponsible. They don’t question the high [annual percentage rate], because they believe they had a hand in getting themselves into that situation. My research has found that’s not true at all. If anything, they’ve been victims.”