Everyone knows their credit score can have a big effect on borrowing power – and with that, the ability to buy a car, own a home, or obtain a fair credit interest rate. But have you ever thought about how your race plays into it?
Credit repair business owners wearing "I FIX CREDIT" shirts register for the 2019 Credit Repair Expo to learn how to help more people out of the bad credit trap.
For years, research has indicated a bias against racial minorities when it comes to calculating risk assessment. Studies show that just living in a primarily Black neighborhood can hinder your ability to get a mortgage loan, for example.
Another study found that from 2007 – 2009, African-American and Latino families lost their homes to foreclosure at a rate almost double that of White people.
Not only that, but Latinx and African-American borrowers often experience higher interest rates – anywhere from 6-9 basis points higher according to research.
Overall, Vice says, "Experts estimate that the higher rates of foreclosure on predatory mortgages wiped out nearly $400 billion in communities of color between 2009 and 2012. The companies that buy up debts and take people to court target people of color more than any other group."
These statistics are the sad reality of a system that stacks the odds against certain populations. But why is this the case?
The Reality of Credit Discrimination / The Credit-Debt Cycle of Destruction
Why do predatory lenders target people of color more than other groups? The harsh reality is, these demographic groups are often targeted for their financial vulnerability.
Debt.org says that predatory lending, by definition, “benefits the lender and ignores or hinders the borrower’s ability to repay the debt.” In other words, predatory lenders take advantage of people in tough situations, and with little financial know-how. This dubious practice results in profits for the lenders but leaves the borrower in a risky and potentially disastrous situation.
Wealth inequality by race is another contributor to credit discrimination. Pew Research Center says the net worth of White households was 13 times the median of Black households and 10 times that of Hispanic households in 2013.
A lower net worth means less money set aside for a rainy day and fewer resources to draw on (whether it’s savings or the help of a family member). Imagine this scenario: A low credit score makes it hard to get a loan, so your loan interest rates are higher. A higher interest rate is tougher to pay back, and you’re trapped in a vicious cycle of debt.
Such predatory and high-risk, high-cost loan conditions have led many families to ruined credit, foreclosure, and even homelessness.
How Big Data Could Reinforce the Systemic Oppression
Determining credit scores has always been a complex game, and it’s becoming more so. The raging debate about fairness/discrimination in the risk assessment world continues to grow more heated as artificial intelligence plays a bigger role.
Your credit score is determined by information in your credit report including payment history, credit history, the balance-to-limit ratio on your credit cards, recent activity, and overall debt. More recently, it may also include other data points like your zip code, which dating platforms you use, or even sexual orientation and political beliefs.
Major players in the FinTech (financial technology) world are now using AI-powered systems that include non-traditional data to determine credit scores. Lenddo, for example, uses exclusively “non-traditional data derived from a customer's social data and online behavior.”
The problem with this is that data points like zip codes have been historically used to systematically deny loans to people of color. And it could happen again.
How Credit Repair Businesses Help Break the Vicious Debt Cycle
You may feel compelled to help because you know people who have been unfairly targeted with predatory loans. You may want to help because it’s happened to you. For whatever reason, if you feel driven to help others out of a credit trap, you may have what it takes to run a credit repair business and call yourself a hero.
Credit repair businesses reverse the discriminatory loan cycle by:
- Writing dispute letters to remove negative items that don’t belong on the clients’ credit report
- Giving clients hope for a better score, and results that put each client in a better financial position than they were in
- Offering financial education so clients don’t repeat the same mistakes
That’s where you come in. As a credit repair business owner, you can be a part of the solution. By providing education to people with bad credit and providing them real options to escape debt, you help put a stop to predatory and discriminatory lending practices. Not to mention you help people get their credit, and their lives, back on track.
Start helping people in your community now. Learn how to quickly start and run a credit repair business with this free online training: