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. Spencer Platt/Getty Images

The Society for Human Resources Management reports that 60 percent of U.S. employers use credit checks as part of their screening process for job applicants. This is, in part, the reason many African Americans are still struggling to find work. And it also explains how credit invisibility and being unbanked or underbanked exacerbates existing racial bias in hiring and lending.

As African Americans are increasingly excluded from mainstream financial services, their options for employment and wealth creation through homeownership are exponentially decreased. Lost opportunities resulting from racially biased lenders and employers—which are difficult to quantify—further complicate matters.

Although the companies that calculate credit scores say they don’t consider race in their formulas, and federal law prohibits it, studies show a persistent 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.

“When black parents die, we often inherit debt and financial obligations—not equity,” said Wherry. And this “relational accounting” (pdf) is a subject that he says is rarely discussed within the black community—although almost everyone has a sibling, cousin, aunt, uncle or friend who bears the responsibility of providing a safety net for extended family members. “I have students who send money home as soon as they receive their loan checks,” he said. “The stereotype is that blacks love to buy cars or designer clothes. The truth is, they are spending on basics to survive.”

So what’s the solution?

Last year, in a rare bipartisan effort, Reps. Keith Ellison (D-Minn.) and Mike Fitzpatrick (R-Pa.) introduced the Credit Access and Inclusion Act (H.R. 2538), which enables Americans to build more-accurate credit scores by allowing cable, phone and utility companies to report information to major credit bureaus. This would reduce the number of those who are credit-invisible from 54 million to 5 million.

Wherry said that we also need improved financial education—but workshops and seminars are inadequate because the lessons learned don’t always translate to people’s everyday lives: “Another option is to design products and services that align better with habits people already have. The incomes for this population are both low and volatile, fluctuating from month to month. These households are trying to save consistently but are doing so with instruments that don’t help them very much.”

But, he acknowledged, there is no “magic bullet.”

“Right now, people who are underbanked are squeezed between the banks and the payday lenders without much in between,” he said. “Low- and moderate-income families need more, not fewer, financial options.”

Edward Wyckoff Williams is a contributing editor at The Root. He is a columnist and political analyst, appearing on Al-Jazeera, MSNBC, ABC, CBS Washington and national syndicated radio. Follow him on Twitter and Facebook.