Credit scores and race

Your credit score opens a lot of doors. It’s the code that unlocks money and opportunity. But for Black Americans, credit scores include some built-in biases, factors that aren’t often talked about.

Start with the basics: More than 50% of white households have a FICO credit score above 700, compared with only 21% of Black households. That’s the threshold score for most mortgage loans – and a “credit gap” that directly impacts who own a home, the most common determinant of wealth in the US. 

How can numbers discriminate?

But aren’t credit scores done by the numbers? How can numbers lie?

Today’s credit bureaus use a familiar set of numbers which, on the surface, apply equally to everyone across the board. It’s all spelled out. The bureaus are transparent and straightforward about it. 

They’re just tracking how responsibly you use your credit, if you pay your cards on time, and how much of your credit you use, plus the types of credit you use, any new credit you’ve taken on and how long you’ve managed loans or credit cards responsibly. 

Very clear cut. It’s all just numbers. In fact, the 1974 Equal Credit Opportunity Act prohibited credit bureaus from using race, national origin, religion, sex and marital status. So how can numbers discriminate?

“History won’t stop talking to us”

Well, real people and real history still aren’t included, even when those numbers aren’t looking specifically at race. Today’s chosen credit factors reflect a history of unfairness that continues to limit access to a level playing field. 

In a recent interview at Forbes, Frederick Wherry, professor of sociology and director of the Dignity and Debt Network at Princeton University, explained how our history of discrimination impacts Black Americans’ lack of generational wealth today.

“We’re often told to stop talking about history, but history won’t stop talking about us,” Wherry says. “The data used in current credit scoring models are not neutral; it’s a mirror of inequalities from the past. By using this data we’re amplifying those inequalities today. It has striking effects on people’s life chances.”

Limited inherited wealth

Past discrimination in employment, homeownership and education impacts the wealth and credit Black Americans hold today. Redlining and racial covenants are just two ways banks and lenders kept Black Americans from building wealth in the past – which affects the wealth and advantages passed down to Black Americans today. 

Before the 1974 credit bureau law, credit decisions were often very personal, involving interviews, references and even home visits – criteria that allowed for racial biases. 

With limited access to credit, today’s credit score factors – like credit length and payment history – might not be the same for Black Americans as it is for whites. 

And when there’s no available credit, borrowing options are often limited to payday and other high-cost loans, which can lead to sinking even further into debt.

Recent good news

At least one of the major credit reporting agencies is changing the game. Experian recently announced they’ll accept other payment records, like utility and rent payments. 

For the first time, we can report our own numbers for payments like these, instead of relying on banks and lenders to supply that information. For Americans with no credit, that’s huge news, offering a new path to credit they were blocked from before. 

Equifax, another credit reporting agency, also announced it will include Buy Now, Pay Later (BNPL) loans in its reporting. BNPLs are often used in place of credit cards, sometimes with no credit check required, and until now, BNPLs only reported missed payments, potentially dinging your score. But going forward, positive on-time payments on BNPL loans can also help boost your credit score. Responsible repayments of BNPLs can now lead to other forms of credit, like cards and even home loans. 

Researchers and advocates have long pressed for new data points, hoping to focus on future repayment behavior instead of the past. Some also suggest looking at cash flow – how much money you have in your bank account daily over a year – another factor that

Bright works for everybody

Bright uses many more data points than any credit agency or credit card company, leading to highly individualized decision making. The data science driving our MoneyScience™ AI responds and adapts week by week, focused on your current and future finances.

When you use our credit card management service, Bright addresses the factors that impact any credit score, always making card payments on time and often making multiple payments within each month, to improve your positive payment history.

Bright works for everybody, for every goal and every plan. No credit check is required to join Bright, and our pricing is always transparent, with no hidden fees. 

If you don’t have it yet, download the Bright app from the App Store or Google Play. Connect your checking account and your cards, set a few goals and let Bright get to work.

This is one in an ongoing series of Bright articles on race, credit and money in America.

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