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Editor’s note: This is the second in a three-part series about things the Consumer Financial Protection Bureau is up to. See the first part here, and check back tomorrow for the last part.

Richer people not only have more money and better lifestyles, they also have more ways to get and keep good credit.

Low-income consumers are 240 percent more likely to start their credit history with negative records, like a debt collection, the Consumer Financial Protection Bureau says. Higher-income Americans have access to positive records through opening a credit card or getting a good-credit co-signer — something those with  low income don’t necessarily have.

“It is no secret that lower-income consumers face challenges in the financial marketplace,” says CFPB director Richard Cordray. “Today’s study shows that even at the beginning of their financial lives, they are faced with higher hurdles to gain access to credit, which hinders them from turning their version of the American dream into reality.”

As recently as 2015, there were an estimated 26 million people that were “credit invisible,” or had no credit history at all. With no credit history, it’s hard for lenders to approve a consumer for a credit line and if they do get approved, consumers face higher overall costs than those with established credit histories. The CFPB says blacks and Hispanics are disproportionately affected by this, having a harder time getting credit or paying more for credit lines in the long run.

The major benefits of making more money

Aside from the very real fact that their income is higher, Americans who live in higher-income areas have more access to establishing a credit history earlier on in their lives. Their lives are more stable, and they know other people with financial stability.

“Roughly 15 percent of consumers established a credit history by relying on co-borrowers and another 9.6 percent of consumers did so when they became an authorized user on someone else’s credit account,” the CFPB says. “Consumers in higher-income areas are 100 percent more likely than those in lower-income areas to rely on someone else to establish their credit.”

One-third of higher-income consumers start their credit history with a co-borrower. Low-income Americans don’t have this luxury.

“Consumers in lower-income neighborhoods may have fewer potential co-borrowers to rely on,” the report says. “This may be inhibiting their ability to transition out of credit invisibility and contributing to the higher incidence of credit invisibility in lower-income neighborhoods.”

Higher-income consumers also have easier access to establishing credit through getting a credit card.

“Forty-four percent of consumers in higher-income areas establish a credit history with a credit card versus 34 percent of consumers in lower-income areas,” the CFPB report says.

Student loans are still problematic

As the student loan debt exceeds $1.3 trillion, graduates are facing more hurdles than just debt repayment. The CFPB reports that consumers who become “credit visible” from student loans has doubled in the last 10 years.

This means that people under the age of 25 who start off their credit history with establishing a student loan has gone up. In 2006 it was only 10 percent, while in 2016 it’s up to 26 percent.

While not a huge deal, those young consumers who could’ve started their credit visibility from a credit card went on to start it through student loans — which have a much higher balance and are treated differently than revolving credit like credit cards.

The CFPB says credit cards are less available to young people — the CARD Act says consumers 21 years old and younger need a co-signer. This law made young people hold off getting credit cards until they were older, which meant credit visibility was either delayed or established by a student loan.

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Meet the Author

Dori Zinn

Dori Zinn


Zinn is a freelance journalist based in Fort Lauderdale, Florida.



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