Consumer watchdog worried about racial disparities in credit reports

by Tim Devaney - 05/05/15 3:00 PM ET

A consumer watchdog group is concerned about data showing significant racial differences in consumers’ credit scores.

Black and Hispanic consumers are nearly twice as likely as white people to have no credit history — which is used to assess how likely they are to repay a loan, according to a new report from the Consumer Financial Protection Bureau (CFPB).

These consumers, which the agency says are “credit invisible,” are less likely to qualify for low-interest rates on mortgages, car loans, student loans and credit cards.

{mosads}“What may be most concerning is that our analysis suggests that these differences across racial and ethnic groups materialize early in the adult lives of these consumers and persist thereafter,” CFPB Director Richard Cordray told reporters Tuesday.

“One explanation could be that these consumers face reduced access to credit that continues to hamper their opportunities for growth throughout their lives,” Cordray added.

Credit reporting agencies use consumers’ credit histories to set their scores. They factor in things like payment histories on mortgages and car loans.

Consumers with higher credit scores are offered lower interest rates.

But the CFPB found that 26 million people have no credit histories at all, while another 19 million do not have enough information for reporting agencies to set their scores.

Black and Hispanic consumers are “considerably more likely” to wind up on this list, the agency found.

According to the report, 15 percent of black and Hispanic consumers have no credit histories, compared to just 9 percent of white consumers.

“A limited credit history can create real barriers for consumers looking to access the credit that is often so essential to meaningful opportunity—to get an education, start a business, or buy a house,” Cordray said.

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