New Study Highlights Critical Need For Improved Credit Access For Black Americans

The credit system has a long history of inequity for Black Americans, and a new study from Varo Bank sheds light on the persistent disparities our community faces with major credit bureaus as we continue to navigate the challenges of today’s tough economy.

Varo’s forthcoming Consumer Credit Watch survey sheds light on the challenges low-income Americans encounter with credit and debt. In partnership with Morning Consult, the survey explored the financial habits and struggles of employed adults living paycheck-to-paycheck, revealing how they manage rising costs and increasing debt.

The study found that while 68% of Black Americans report being impacted by inflation, a slightly lower percentage than the general population at 76%, they face more barriers when it comes to credit approvals, with only 25% being consistently approved for credit compared to 35% of the general population, a press release noted. Despite this, Black Americans report slightly more financial stability, though they are less likely to apply for credit or loans. The Varo Bank study also revealed that 60% of Black Americans desire greater access to credit, a higher percentage than 43% of the general population. 

With inflation hammering down on the cost of living expenses in Americans, Black Americans are more likely to use credit for essential expenses like groceries and bills compared to the general population, the study noted. Other findings from the report include that only 27% of respondents believe the credit system is fair, and 69% of people living paycheck-to-paycheck are carrying debt, with the average amount of loans denied to pay down debt totaling $10,455. These findings underscore the persistent challenges faced by Black Americans in accessing and utilizing credit while highlighting broader issues within the financial system.

What is a credit score?

A credit score is a three-digit number that reflects a person’s creditworthiness or how likely they are to repay borrowed money. It is calculated based on the information in a person’s credit report, which includes details about their credit history, payment habits, outstanding debts, and other financial behaviors. Credit scores generally range from 300 to 850, with higher scores indicating better credit management and a lower risk to lenders. 

The two main credit scoring models are FICO and VantageScore, with FICO being the most widely used—employed by 90% of lenders, according to Bankrate. Both scoring models rely on data from the three major credit bureaus—Experian, Equifax, and TransUnion—to calculate your credit score.

Several factors influence your credit score, including payment history, which considers whether you’ve paid your bills on time; credit utilization (30%), which looks at the ratio of your current credit card balances to your total available credit as well as the length of your credit history. 

All of these factors play a crucial role in determining whether you can secure a loan, credit card, or mortgage, and they affect the terms of those loans, including the interest rates. Higher scores typically result in lower rates and better loan terms, while lower scores may lead to higher rates or even loan denial.

How are credit scores used to discriminate against Black borrowers?

Redlining, a discriminatory lending practice that historically barred Black Americans from securing mortgages and prevented them from homeownership, was outlawed decades ago. Yet, remnants of this racially biased system continue to affect Black Americans today. While the Equal Credit Opportunity Act (ECOA), passed by Congress in 1974, was designed to protect against discrimination by prohibiting creditors from using race or gender in lending decisions, discriminatory practices persist in more subtle forms. 

For example, a 2019 study from the University of California, Berkeley, found that minority applicants, particularly African Americans and Latinos, are often rejected for mortgages at higher rates than white applicants. The study revealed that accepted African American and Latino borrowers pay significantly higher interest rates on home-purchase and refinance mortgages due to discrimination—7.9 basis points more for Latinx borrowers and 3.6 basis points more for African American borrowers.

These additional costs amount to an estimated $765 million per year in extra interest payments for minority borrowers across the U.S. The study also noted that FinTech platforms —which rely on digital lending algorithms—discriminated 40% less than traditional face-to-face lenders, although minority applicants still faced higher interest rates on mortgages.

A 2019 Lending Tree study highlighted a persistent issue: African Americans had the highest mortgage denial rates in 2018 at 17.4%, compared to 7.9% for white applicants. This trend has been ongoing since at least 2004, with African American and Latino borrowers consistently facing the highest denial rates.

These patterns of discrimination, combined with lower average credit scores among Black Americans—often the result of systemic inequalities, income disparities, and barriers to wealth-building—significantly limit their access to essential financial opportunities such as homeownership and affordable loans. 

In 2022, The Urban Institute analyzed median credit scores across communities with majority Black, White, Hispanic, and Native American populations. The study found that white and Hispanic communities had the highest median credit scores, while Black and Native American communities had the lowest. Specifically, the median credit score for Native American communities was 612 (near prime, classified as “fair”), while Black communities had a median score of 627 (also near prime, “fair”). In contrast, Hispanic communities had a median score of 667 (prime), and white communities had the highest median score at 727.

How can Black folks improve their credit scores?

Improving credit scores is essential for financial mobility, and there are several strategies Black Americans can adopt to improve their credit over time, helping to break free from the historical barriers that have limited access to financial opportunities.

Pay Bills on Time

One of the most important factors affecting your credit score is your payment history, which makes up 35% of the score. Paying bills like credit cards, loans, and utility bills on time can have a significant positive impact. Setting up automatic payments or reminders can help ensure you never miss a due date.

Reduce Credit Card Balances

Credit utilization (the ratio of your credit card balances to your credit limits) accounts for 30% of your score. Keeping this ratio below 30% is ideal. If you’re able, paying off credit card balances in full each month can improve your credit score and reduce the interest you pay.

Avoid Opening Too Many New Accounts

While it’s important to have a mix of credit types, opening too many new accounts in a short period can lower your score. Each hard inquiry (when a lender checks your credit) can impact your score slightly, so it’s best to apply for new credit only when necessary.

Review Your Credit Report Regularly

Errors on your credit report, such as incorrect late payments or accounts that don’t belong to you, can lower your score. It’s important to check your credit report regularly (at least once a year) for any mistakes. You can request a free report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) at AnnualCreditReport.com. Disputing any inaccuracies can help improve your score.

Become an Authorized User

Another way to improve your credit score is by becoming an authorized user on someone else’s credit card account, such as a trusted family member or friend with good credit. As an authorized user, their positive payment history will be added to your credit report, which can help boost your score.

Address Delinquent Accounts 

If you have delinquent accounts or accounts in collections, working with your creditors to negotiate a payment plan or settle the debt can be beneficial. You may be able to get the account marked as “paid” or “settled” on your report, which can positively affect your credit score. If the account is very old, it may also be approaching the seven-year mark when it will fall off your credit report, Experian notes.

Financial Education and Resources

Taking the time to learn about how credit works can also be incredibly valuable. Resources, workshops, and organizations, such as credit counseling agencies, can provide guidance and support on improving your credit.

Stay Patient and Persistent

Improving your credit score is a long-term process that requires patience and consistent effort. It may take months or even years to see significant improvements, especially if you have past issues like late payments or high debt levels. However, staying on top of payments and managing your credit responsibly will gradually raise your score. By following these steps, Black Americans can slowly improve their credit scores, leading to better access to loans, lower interest rates, and more financial opportunities. While rebuilding credit takes time and effort, it’s an essential step toward achieving greater financial stability and success.

SEE ALSO:

Financial Literacy Tips For Building Black Generational Wealth In 2025

Kevin Cohee On Financial Literacy, A.I. And How Banks Should Be Helping You Make Money