There is a wide disparity of credit profiles of people living in low-to-moderate income areas of the country, as can be expected, but a specialist at the Federal Reserve Bank of St. Louis has noticed that the racial composition of a neighborhood is a factor in the overall credit-worthiness of the people living in that area.
Those areas of low-to-moderate (LMI) income neighborhoods, which are defined as having 80% of the average median income for that area or state, which have higher credit scores also tend to have more white people living there, according to a study that was published earlier today. Those LMI areas which have credit scores that are lower tend to have a “larger share of African-American occupants,” according to the study.
Credit scores are used for more than just determining whether to approve someone for a loan these days. Insurance rates and job applications also can hinge on a credit score, so the differences from one neighborhood to the next are significant, including for debt collectors. Knowing whether the individual lives in an area where the credit scores tend to be higher — or lower — can help determine a course of action when attempting to collect a debt.
The illustration notes the 10 metropolitan statistical areas that have the lowest — and highest — percentage of “credit constrained” individuals, which includes those with low or no credit scores.
A good credit profile can be the make-or-break detail that determines an individual’s ability to get a mortgage, car loan or student loan. It can also be a factor in whether or not one can rent an apartment, how much insurance costs, and securing employment. In short, good credit can signify whether an individual’s financial situation is on the right track. This can be particularly powerful for someone living in an LMI neighborhood where opportunities to improve their situation can be scarce and hope can feel far off in the distance. That’s why many nonprofit organizations throughout the country, sometimes in partnership with bank representatives, work with people to improve their credit profiles.