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Learn about your credit score, why it is important and what you can do to improve it.
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Why is it so important?
A good credit score is a gatekeeper to housing, wealth, and even career opportunities in the U.S., but historical biases surrounding credit scores block many Americans from accruing wealth.
Several studies have shown that many Americans face mountainous challenges in trying to build and maintain good credit. Low-income households, people of color and generally immigrants have a hard time trying to escape this hurdle.
In fact, an Urban Institute research highlighted credit scores as contributing to racial disparities in wealth and financial independence of people of color and the cities they live in.
The Urban Institute reports, “38 of the 60 cities have differences in median credit scores of 100 points or more between predominantly white and nonwhite areas. Nationally, the difference in media credit scores is nearly 80 points (697 vs 621, respectively) , which for a conventional mortgage, can cost families an additional $100 or more monthly and thousands of dollars over the life of the loan.”
On the contrary, “predominantly nonwhite areas in more than 50 of 60 cities have below-prime median credit scores (660 or lower), and most of these are subprime (600 or lower).”
What’s preventing millions from building good credit?
CFPB statistics show that credit invisibility begins at a young age and can last over a long period. Having family support, and financial literacy is key to securing a first credit card or bank account. An individual growing up in a family with little disposable income or an area with few financial institutions may find it difficult, if not impossible, to get a bank account or a credit card.
How to build a good credit score
Financial analysts advise that the best way to build good credit or repair a bad one is to show your ability to receive and pay back the money you borrow from credit institutions. It is essential to use and pay off your credit card debts timely, secure and pay off loans, and understand the implications of your credit score and credit report, among others. Here is a step by step process of building your credit as put together by Time.com.