‘Credit Invisibility’ Widens Racial Gap in Homeownership

A father holds his baby daughter while looking at a bank statement, concerned
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About 15% of Black and Latinx people in the U.S. are essentially cut off from owning homes due to “credit invisibility,” according to a new report that proposes expanding access to credit to help shrink the racial gap in homeownership.

A strong credit history and access to credit offerings are directly correlated with higher homeownership rates, according to a report by real estate firm Zillow released Wednesday. Yet about 15% of Black and Latinx people lack a credit record, while 9.7% of Black households and 7.9% of Latinx households live in areas with limited access to credit products and services, Zillow said. These rates are all higher than those for White or Asian households.

This disparity is a big deal because most people—72% of all homebuyers, by Zillow’s count—need a loan in order to purchase a home. The rate is even higher for Black and Latinx homebuyers, at 78% and 77%, respectively. Without access to loans, homeownership is unattainable for many Black and Latinx people, exacerbating the racial gap, according to the report.

Credit history—or lack of one—is the top reason mortgages are denied to Black applicants, Zillow said. Black and Hispanic people also make up a disproportionate share of overall mortgage denials, representing 22% of rejected applicants and only 15% of the population.

“For many, walking into a bank or going online to apply for a loan or open a new credit card is simple,” said Nicole Bachaud, economic data analyst at Zillow, in a statement. “But for those excluded from the formal credit market in this country, it is a far more daunting task, and Black and Latinx households are especially vulnerable. A shift in credit reporting might be a first step to reducing the systemic barriers into homeownership and the financial market overall.”

Despite legislation (like the 1968 Fair Housing Act) that’s meant to make homeownership more attainable for all people, the gap among races has actually widened in the past 20 years, according to the Urban Institute, a think tank. In 1960, the gap between Black homeownership (38%) and White homeownership (65%) was 27 percentage points. That gap had grown to 30 percentage points by 2017.

President Joe Biden campaigned for the presidency on a promise to reduce racial disparities partly by reworking the credit system. Biden proposed creating a new public credit division within the Consumer Financial Protection Bureau that would accept non-traditional sources of data like rental history and utility bills to establish credit. These reforms would help bring people who are “credit invisible” into the formal sector while also lifting subprime credit scores, according to Biden’s campaign website.

Even when they’re able to obtain mortgages, Black homeowners face unequal treatment, according to another recent study from Harvard University. While mortgage rates generally decline for higher-income borrowers, even the highest-earning Black homeowners paid mortgage rates higher than those of the lowest-earning White homeowners.

Better and expanded access to credit could not only improve homeownership rates, but could also narrow the wealth gap between Black and White households. That gap has also continued to widen, with the median White household holding 7.8 times the wealth of the median Black household in 2019, according to a report by the Brookings Institution.