A comparison of typical credit ratings for various ethnic groups reveals significant discrepancies, with Hispanics scoring on par with the national average and Blacks scoring well below that level. Meanwhile, the White and Asian communities had much higher ratings than the general population.
Here is how the numbers break down.
- Credit scores do not take into account age, race, income, or residence.
- However, some ethnic groups may be disproportionately affected by the financial parameters used to compute credit ratings.
- In the United States, Asian and White people have the highest average credit ratings. Hispanic credit ratings are nearly equal to the national average, whereas Black credit scores are below average.
- The overall average score for all categories is judged Good to Very Good.
What the Credit Score Study Found
Shift, a payment processing provider, determined the median credit score for all Americans in 2019 based on FICO score data. This is similar to the 701 average for Hispanic customers. Blacks, on the other hand, had a credit score of 677 on average.
With an average credit score of 745, the Asian population has the highest credit score. This is somewhat higher than the White American average of 734 in 2019.
Despite these variances, the averages for all ethnic groups were in the Good range, with the exception of the Asian population, who had a Very Good average.
Credit scores assess a variety of financial criteria but do not include a person’s age, race, income, or location. Differences in take-home earnings, how much additional debt a customer has, whether or not they’ve ever had a credit card, and whether or not they are a homeowner may all contribute to inequalities.
|Average FICO Score by Race|
|Race||2019 Average Score||Classification|
Shift Credit Card Processing’s credit score data report draws from a variety of sources, with racial credit score data eventually coming from the Federal Reserve (Fed).The Fed monitors and reports on consumer debt and credit indicators in the United States on a regular basis.
Understanding Credit Scoring
Credit ratings might be perplexing. There are many distinct credit scoring models, as well as three main credit reporting agencies. However, FICO is the most generally utilized system, with scores ranging from 300 to 850.
The two biggest impacts on your credit score are:
- How often and on time you pay your bills, which accounts for 35% of your score
- What percentage of your available credit you’ve used, which contributes for 30% of the overall computation
In other words, these two elements account for about two-thirds of your overall score.
How long you’ve had a credit history (longer is better), how many times you’ve applied for new credit in the previous 12 months (fewer is better), and whether or not you demonstrate a mix of credit kinds are all weighted less highly but still relevant (variety is good).
What Constitutes ‘Good’ Credit?
Experian, a credit reporting organization, categorizes credit quality into five groups, starting with Poor and ending with Exceptional. Anything less than 580 is deemed Poor, and a score of 670 is required to advance into the Good category. A Fair score is in the middle of the two. Very Good starts at 740, while those with a score of 800 or more are considered Exceptional.
The Bottom Line
Credit availability is a crucial component to credit ratings since each score assesses a person’s credit history. Building a solid credit history might be tough for people who have never had the chance to create a credit card account. Similarly, a low salary makes it tougher to fund bills and makes it simpler to skip a credit card payment.
Other sorts of debt might also get in the way. For example, Black Americans often have greater student loan debt than White Americans, which might interfere with their capacity to make timely payments on other loans, causing their credit history to suffer.
Furthermore, credit scoring methods favor homeownership by monitoring mortgage payments but not rent or utilities. Renters make up a bigger proportion of Black and Hispanic households than White and Asian households, therefore fewer Black and Hispanic customers may benefit from mortgage-related inputs to their score, although a perfect rent payment record may have no influence.
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