One of the big misconceptions about financial literacy in America is that black people are predisposed to mismanagement of money. Unfortunately, a long history of discriminatory lending and banking practices that target non-whites is often overlooked by those who tout such theories.
From 1933 to 1968, for example, American banks denied black Americans access to financial services in a practice known as redness. Although this practice is illegal today, it has had catastrophic and lasting results and has forced black families to rely on high-cost financial products such as payday loans and loan sharks for money. quickly.
Without bank accounts and without access to loans to buy homes, African Americans faced the opening of what would be a wealth gap that spanned generations.
Additionally, credit scores – the three-digit number associated with credit worthiness – impact almost every aspect of our financial life and longevity, but remain low for black Americans. Credit scores were created in 1956 by Bill Fair and Earl Isaac – the name FICO is an amalgamation of their names (Fair, Isaac and Company).
But equally discriminatory, FICO scores do not take into account income, savings, utility bills, employment status, or debit transactions. Instead, FICO uses data from individual bank accounts, mortgages, and savings – which blacks all have in lower numbers thanks to redlining – to generate a score. When we consider that black homeownership rates are 30% lower than white homeownership rates, it only adds to the wealth gap if apartment and utility bills publics have no value in the topic.
Credit scores are closely related to a person’s ability to enrich themselves and become financially successful in the United States, as ratings often determine eligibility for loans, apartment rentals, and even jobs.
A low credit score can also lead to the loss of job opportunities.
Carmen Perez, founder of Make Real Cents, noted in a recent Business Week article that she had a job offer canceled due to negative ratings on her credit report.
“At the time [the marks] included a delinquent student loan. The salary I would have earned for this particular role would have helped me pay off my student loan debt faster, but that benefit was never realized.
So how do we become creditworthy against seemingly cumulative odds? Invest in your financial future by taking classes and reading books about how credit, loans, and repayments work.
Try products like Experian Boost, which launched in 2019 and helps you factor in rental payment histories in an effort to improve your credit score.
Find out if your area has legislation, like New York’s Anti-Discrimination in Employment Act, which prohibits most employers from checking a candidate’s credit history in making decisions hiring. If this legislation is not active, contact your local representatives for assistance.
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