Blacks and Hispanics often have lower credit ratings

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Credit ratings in the United States do not work for many blacks and Hispanics, who tend to have lower credit ratings than other racial groups, and report that the system is opposed to them.

About 54% of black Americans report that they have no credit or have a bad or satisfactory credit rating, which is considered to be anything below 640. Recent survey of 5,000 US adults by Credit Sesame… About 41% of Hispanics also fall into this category.

In contrast, 37% of white Americans report bad or no credit, and only 18% of Asian Americans report similar credit circumstances.

“Although the credit system was created blind, this data shows that blacks and Hispanics are being unfairly excluded from the system,” said Jay Moon, general manager of lending at Credit Sesame. said in a statement

Debt and savings levels play a role in credit ratings

Credit ratings, which range from 300 to 850, are based on a number of factors, including the payment history of the bills, the number of open accounts, the length of your credit history, and the amount you currently owe. Your age, race, salary, length of service, and place of residence are not counted.

While race may not be a clear factor, the financial situation that characterizes many blacks and Hispanics does play a role in creditworthiness. More than half of black Americans live paycheck to paycheck, which can affect their payment history and the rate at which they use credit to generate income. In contrast, according to Credit Sesame, only about 44% of Americans overall report running out of money before payday.

In addition, black Americans tend to have a higher level of student loan debt than the average person, and only about half of them own a credit card, which can be a significant help in building credit if used correctly.

Moreover, 30% of blacks and 25% of Hispanics believe that they have never had the opportunity to earn a good reputation, and believe that the system was against them from the beginning. In fact, 30% of black Americans and 27% of Hispanics report being misinformed or deceived during their first loan experience. Only about 18% of whites and 15% of Asian Americans say they have been similarly cheated.

Bad credit has far-reaching consequences

Having poor creditworthiness leads to a number of financial consequencesincluding refusal to issue a credit card or higher interest rates on loans. It can also affect housing, employment, mental health, and even relationships, Moon said. “It is unacceptable that it affects the lives of some more than others,” he adds.

Those who have credit rating ranging from 300 to 549 report that their poor credit history has impacted their home, career, relationships, and even their ability to communicate. About 28% of people with bad credit say that they cannot rent the apartment they want, and 22% have refused a cellular tariff plan. according to an earlier report by Credit Sesame

“Creating equal credit opportunities is an important first step towards bridging the racial divide in our society,” says Moon.

Recent innovations and new fintech products on the market can provide a much more complete picture of creditworthiness. Experian Boostfor example, allows consumers to link their monthly utility and communications bills to obtain credit for timely and complete payments.

“Whether it’s creating products specifically for these underserved groups or providing more ways to access credit and resources, it’s important to make progress,” says Moon.

Check: A bad credit rating affects more than just getting a loan or credit card.

Do not miss: Here are the 5 best personal loans for December 2020.

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