OPINION: Credit Programs for BIPOC Communities Can Reduce the Racial Wealth Gap

by Tierra Bonds

"Black people are lazy! They are financially irresponsible and buy things they can't afford, like jewelry and nice cars. They even have kids they can't afford. They don't educate themselves on finances, and when they pursue higher education, they often don't get degrees that make enough money." — said by a large portion of society using stereotypes to justify the lesser economic state of Black Americans and, in some cases, justify their privilege.

Hearing these types of statements as a Black teenage girl 15 years ago led me to work two jobs while in high school and in college. I did this to make ends meet, break these stereotypes, and avoid being labeled as a lazy, poor, or dumb Black girl. Imagine how much weight this was.

I learned that, no matter my efforts, there was no amount of hard work, income, or education that I could have to undo 400+ years of prejudice and discriminatory practices.

All the while, I noticed that many of my peers (who were mainly white) did not have this same pressure to chase money because they had financial support from their parents.

As I learned about the history of America and Blacks (not the history we were taught in school), I learned how deeply rooted the wealth inequalities are — and have always been — in America. The connection between wealth and privilege is so apparent that even white men are able to see it. I was relieved to read this from Christian E. Waller, a professor of public policy at University of Massachusetts Boston:

"Racial disparities in wealth are not a result of individual or family choices but rather the result of structural racism in American public policy."

Because of structural racism, it should not solely be an individual or family's responsibility to fix these disparities. The consistent inequalities suffered by Black Americans are much bigger than the choices of my grandparents, my parents, or myself. Much bigger than me begging my grandma to take me to drop off applications and resumes at 15; bigger than working for Hollister clothing and the Department of Corrections, maintaining 2 jobs at 16 while missing events with my friends; bigger than rushing from work to college night classes, trying to make up for the many racial inequalities. There is no way I could fix that on my own.

How the Racial Credit Gap Impacts the Racial Wealth Gap

To begin to address the racial wealth gap, we need to understand that the credit gap is a direct result of institutional racism. It is my recommendation that organizations and individuals that have benefited from generational wealth should be part of the solution and use their dollars to fix it.

Wealth = savings + assets — debts. The average wealth for whites is $171,000 and $17,100 for Blacks. Homeownership and business ownership are the most common means to create wealth — and both require capital. Unless you have enough capital to purchase a home, you will need to use credit. Credit can also be useful in many cases when starting a business.

The average credit score is 734 for whites but 677 for Blacks. I reached out to industry experts in Seattle to get a real-life example of how this credit gap plays a role when building wealth.

According to a recent report by Jennica Lynn of Compass Real Estate, the median sold price for houses in South Seattle (zip code 98108) is $625,000. A mortgage lender in the Seattle area also ran two pricing scenarios for a 30-year mortgage for this median house price. A person with a credit score of 677 (the average credit score for Blacks) ends up paying an interest rate of 4.125% and ultimately a monthly payment of $2,877.61.

For someone with a credit score of 734 (the average credit score for whites), the interest rate is 3.5% and the monthly payment is $2,666.20. The difference monthly is $211.41. This means the average Black family would pay an additional $2,536.92 in interest each year. This amounts to paying an extra $76,107.60 over the life of the loan.

Let's see look at this in another form:

What can one do with an extra $2,536.92 a year? What if it was invested in an investment account over that same 30 years at a modest 1.5% interest rate? That $76,107 turns into $110,000, further widening the racial wealth gap.

Think about this for a second.

How can we say we care to reduce the wealth gap if we are not paying attention to the credit gap and we are okay with Black families paying $76,107 more just in interest compared to average white Americans?

How Can We Address the Credit Gap?

Well, this is what we do at Take Charge Consulting LLC. I founded the company in 2017 after experiencing the complications of bad credit. I had trouble finding companies I trusted to help me and didn't know where, how, or if I could even get help. I knew that if I was struggling with credit, others in my network were also because we weren't taught about this in school.

At Take Charge Consulting LLC, we focus on credit repair and use the Fair Credit Reporting Act (a law enacted to allow consumers to dispute items on their credit report) to our client's advantage and repair their credit for them. By removing negative accounts from their credit report, clients can see increases in their credit score. Our program also provides credit building/rebuilding and credit education. With a mix of credit repair, rebuilding, and education, we've been able to help hundreds of individuals experience the benefits of good credit, which is most commonly homeownership and starting a business, giving them a chance at building wealth.

Who Should be Responsible for Addressing the Credit Gap?

As the credit gap lessens, our economy and all citizens will benefit. Unfortunately, the burden to correct this unjust system is currently shouldered by those who have already been the most impacted by it. I see this all the time in my work. Many people who hire us for credit repair struggle to add another bill to their budget. And many aren't able to afford to hire us at all, leaving them to continue in the cycle of bad credit, leading to even worse credit. Some look to solve their poor credit through internet solutions that can be myths, damaging their credit even more or wasting their money.

Organizations (nonprofits, financial institutions, churches, and schools) that are focused on serving the underserved and interested in helping people build wealth should emphasize credit repair and credit education. If these organizations do not provide credit repair, they should partner with a reputable credit repair company to help them do so. Many organizations provide financial literacy education which is great; however, this does not solve the credit or wealth gap. It is access to credit that's needed and access to credit for many marginalized individuals means fixing their credit.

So, What Can You Do as an Individual?

Individuals who have benefited from generational wealth should also be responsible for addressing the credit gap.

Here are a few options:

1. Sponsor one person to put them in a reputable credit program; you can do this through my company.
   
2. Donate to nonprofits that are providing credit repair. Here are some nonprofits that are partnering with Take Charge Consulting LLC to provide credit repair to their communities:
   • Habitat for Humanity
   • Real Escape From the Sex Trade (REST)
   • Black Dot
   • Friends of the Seattle Public Library
   • The Seattle Public Library Foundation
   • GSBA
   • Mercy Corps
   • Business Impact Northwest
   • Pentacle
     
3. Share this article with your network as many are unaware of the racial credit and/or wealth gap.

What Can You Do as an Organization?

Here are a few options:

1. Partner with a reputable credit repair company to provide credit repair and credit education that works for your organization and your clients.
   
2. Hire staff and create a team that provides credit repair and credit education to your clients.
   
3. Provide credit repair as an employee benefit to your staff.

Eliminating the Racial Wealth Gap Will Take Much More

The credit gap alone will not close the racial wealth gap; we need more solutions. For example, reparations for Blacks is crucial in addressing the racial wealth gap and restoring wealth that has been stolen and withheld from Black families in the country for centuries. Reparations is a way to address these injustices in a large-scale and nationwide way. And as we work towards large structural solutions, let's also do what we can, in this moment, like helping individuals access more wealth through good credit.

Bottom Line

We all know homeownership and business ownership is a sure way to build wealth, and for this, good credit is needed. And because of institutional racism, it is everyone's responsibility to fix these disparities, especially organizations that serve the underserved and individuals that have benefited from generational wealth.

Investing in credit programs for the underserved is a simple and necessary step you can take today to reduce the credit gap, which in turn can reduce the racial wealth gap now and for future generations.

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Featured Image: Photo by Yulia YasPe/Shutterstock.com