The Boss

Are African-Americans Avoiding Their Credit Responsibilities?

brad | 29 May, 2009 07:43

I had felt the pain of Subprime borrowers but didn't know the problem was so wide spread until I attended a credit repair event. Seemingly, the cost of credit is being raised disporportunitly by a single minority group- African-Americans.

More complaints surfaced during conversations I had with mortgage professionals at this recent credit repair event. An owner of a brokerage shop voiced frustration to the goup that the cost of her credit reports had shot through the roof. One loan officer from her company quietly quipped to me that if you want to save money "don't run credit on black folks, most are below 580".

I asked more questions to find out why mortgage broker and banker associates might complain about the credit scores of African-American borrowers. The general complaint was that African-American loan applicants were disporportionately credit abusers and that they were too aggressive about accepting credit when it was offered.

It seems that the majority of African-American applicants routinely have scores that are far below minimum standards required by mortgage companies. The problem is so severe that it could be considered a credit pandemic. These are credit scores that are not difficult to maintain such as the new 620 fico minimums for FHA home loans.

Dr. Rickie C. Keys, PhD, MPH, of the University of Denver Center for African-American Policy, conducted the study which found that: The 130-plus million Americans lack prime credit scores (also the unbanked and underbanked) are disproportionately African-American and Hispanic. A copy of the report is available at the University of Denver’s www.blackpolicy.org website.

After questioning more loan officers (purely unscientific) I found that other minorities (other then African-Americans) typically avoid credit whenever possible. Some of these minorities appear on demographic studies as underserved but when you look deeper, these studies don't clarify the root habits within the groups.

Much of what I found reflected credit mismanagement: African-American and Hispanic households are at greater financial risk and more likely to be in credit card debt than their white counterparts, according to a new report, Costly Credit: African Americans and Latinos in Debt, released today by the Economic Opportunity Program at Demos, a leading national, non-partisan public policy and advocacy group. The report analyzed and compared credit card debt and the forces driving credit card reliance in three ethnic/racial groups: African Americans, Hispanics and whites.

Is this type of credit abuse and mismanagement bringing the rest of the country to its knees?