Credit Scores, Wealth, and Race in the United States

Sarah Ludwig has a piece in the Guardian today discussing the manner in which credit scores operate to perpetuate racial inequalities in the United States. Although much decried in the comments section, this is an important and insightful article. Credit scores operate as a gatekeeper to all sorts of resources - loans, but also employment and housing - and as such can effectively distribute these resources throughout society in different ways. If structurally determined then they present a serious theatre within which to combat inequality.

However one point that could be further emphasized by Ludwig is the manner in which credit scores determine interest rates on loan repayments. A lower score leads to higher payments (in theory to compensate the higher risk taken on by the lender). This means that groups for whom credit scores are systematically lower will pay more in interest - i.e. that borrowing costs more for those groups. The racial history of the United States has resulted in a situation in which Black household wealth averages 5% of that of White households, and in which redlining was legally sanctioned until 1968 (and which continued in effect after that). As Coates' The Case for Reparations documents the expropriation of Black wealth in the United States has been multi-dimensional and systematic. Credit scores can be numerical representations of inter-generational discrimination and exploitation. Insofar as interest rates vary between borrowers, credit scores allow the costs of a credit system to be disproportionately borne by minorities.

Credit scores that make it harder and, when possible, more expensive for minorities to access societal resources are a serious concern for social justice.