By Will Buss
September 20, 2010
A new report shows a disparity in credit scores between metro-east communities that have predominantly white residents and towns with predominantly black residents.
In its report, called “Bridging the Gap,” the Woodstock Institute in Chicago concluded that these results indicate significant differences in economic opportunity for black residents in the metro-east as well as communities in the Chicago area.
Those with credit scores in the lowest range usually have a far more difficult time accessing low-cost mortgages, auto loans or credit cards than individuals with higher credit scores. Also, credit scores are becoming more commonly used by lenders, landlords, insurance and utility companies as well as employers who incorporate the scores into their decision-making processes.
Research from the nonprofit Woodstock Institute has found that six of the most recent and lowest credit score averages by ZIP codes in the metro-east were all in the East St. Louis area. Of the six ZIP codes, black residents comprised between 46 percent and 98 percent of the population. The average credit scores, which were recorded in these areas on June 30, 2009, ranged between 579 and 635.
In comparison, the five highest average credit scores were found in St. Jacob, Millstadt, Glen Carbon, Maryville and Highland, where average scores were between 716 to 728, and the black population was between 0 percent and 7 percent. The overall average credit score of all 38 metro-east ZIP codes was 682.
Woodstock Institute researcher Geoff Smith said the new data can be used to help inform and drive new policy and solutions to close these gaps.
“I think that is something that needs to be considered when policymakers and community developers look at strategies to help this economy recover,” Smith said. “I think, for example, one recommendation is to target residents for credit preparation, credit building and counseling services. And we see it is in geographic patterns.”
The report comes at a time when average credit scores are falling. According to recent data from global credit and information management company TransUnion, the average U.S. credit score has recently dropped by six points.
“People are obviously concerned how healthy their credit score is,” said Bruce McClary, spokesman for ClearPoint Credit Counseling Services, a nonprofit consumer credit counseling service in St. Louis. “Lenders are still holding pretty tight onto their cash.”
McClary has worked as a lender, a debt collector, a credit counselor and trained other counselors. He said a healthy credit score is generally 700 or higher. Consumers should be concerned if their score is in the low 600s or below.
The highest possible score one can attain is 850, according to FICO — Fair Issac Corp. — which created the credit score formula used by financial institutions, lenders and other businesses. The score is based on an individual’s’ spending and bill-paying habits as well as their overall debt load.
McClary also said improving credit scores takes time. He said scores do not always reflect an individual’s recent spending habits as the consumer has been working to pay down debt and improve his financial standing.
“Credit scores really measure what you’ve done, not what you’re doing now,” he said. “It may not show what you’re doing now to turn the ship around.”
Chris Giangreco is especially interested in where low credit scores are concentrated. He manages asset-building policy initiatives at Heartland Alliance for Human Needs & Human Rights in Chicago, which helps people living in poverty. He also coordinates with the Illinois Asset Building Group, which invests in building stability and strength in the state’s communities through increased asset ownership and protection.
Giangreco said lower credit scores being concentrated in more impoverished communities is a growing problem. He hopes the new data can help put new policies in motion.
“The problem of credit score and credit scoring, for a variety of different reasons, has become a bigger issue for us,” Giangreco said. “This gives us an opportunity to move toward policies to close that gap.”