How The Housing Crisis Widened The Credit Score Gap Facing African-American Borrowers

African-Americans were twice as likely as whites to get hit by the housing bust and its resulting foreclosures, as big banks pushed a disproportionate number of blacks into sub-prime loans at the height of the housing boom. And now, the effects of that disparity are wreaking havoc on black families in a way that will hurt them for decades, as analysts fear that the already wide gap in credit scores for white and black borrowers was likely exacerbated by the crisis.

According to Federal Reserve data, blacks were already less likely to hold a prime credit score. When new Federal Reserve data is released, analysts expect the existing gap to have grown even wider, the Washington Post reports:

The Federal Reserve is collecting data on how the recession has affected credit scores by race, in what is expected to be significant research on the issue. But the widespread belief among economists, consumer advocates and community leaders is that black Americans are falling behind.

And for black Americans, that means they are starting at a disadvantage. Even near the height of the country’s economic boom, blacks had lower credit scores than whites. Data collected by the Federal Reserve from 2003 — in the most comprehensive study on race and credit scoring to date — showed that less than a quarter of blacks had prime credit scores. Meanwhile, about 65 percent of whites were in this top tier.

The housing crisis, in effect, created a vicious cycle for black borrowers: because they were already more likely to have poor credit scores, they were thus more likely to take out sub-prime loans. Those loans were more likely to go bad, and the resulting foreclosures pushed credit scores even lower. But many blacks were also pushed into bad loans even when they qualified for prime loans, a form of discriminatory lending that has now decimated credit scores for previously-qualified black borrowers.


It isn’t just the housing crisis damaging credit scores; unemployment is too. “Research by VantageScore,” the Post notes, “found that the two biggest contributors to consumers’ deteriorating credit were the fall of home prices and unemployment.” And while the national unemployment rate is currently 8.2 percent, that would represent a historical low for black workers, for whom the unemployment rate (currently at 14.4 percent) has rarely dipped below 10 percent in the last half-century.