Misguided Anger
Bad Credit and Civil Rights
By Daniel Muniz

A bad credit score is not a civil rights issue. Sadly, statistics show that plenty of minorities do have lousy credit therefore civil rights activists have taken up this problem as another component of their crusade. Trial lawyers also want to get into the act because it is far easier to wrangle out a settlement from a company when race is involved instead of a case solely relying on a low credit score. But what is unfortunate is that civil rights activists don’t want to solve a problem that actually has a solution. Instead, they want to exploit racial tensions and ignite class warfare to further their own agenda.

Money problems can affect everyone regardless of what color your skin is. And when bad credit is added to that equation, it makes an already bad situation even worse. But race has nothing to do with it because anybody can end up with bad credit, even rich white people.
 

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Overall, a credit report is nothing more than an individualized profile showing how you managed your contractual obligations. If you paid your bills on time, then such transactions are reflected on your credit report. If you have late payments or no payments at all then that too is also reported. And there are plenty of other factors involved like having a good mix of credit items, balances on revolving credit, etc.

Each trade line listed on a credit report is the result of a personal decision. There is absolutely nothing racial about people making their own personal decisions. Therefore, what is shown on your credit report is a detailed record of how you handled your credit regardless of whether or not you exercised responsible credit behavior.

A credit score is a numerical snapshot based on all the activity and transaction history that is contained in your credit report. Now here is where it gets dicey because this score represents your potential risk for current and future credit as a three digit number. The higher the number, the less of a risk you are and the lower the number, the greater chance that you will be unable to repay a debt.

So how mathematically sound is this projection and can it really predict what you are actually going to do in the future?

Although mathematicians have devoted decades to fine tuning the algorithm that generates the credit score, its biggest fallacy is that it is still based on the concept of garbage in, garbage out. It is far from perfect because the credit reporting methodology is not very good and there is still plenty of incomplete financial information that is fed to the credit bureaus so it can never be an accurate qualitative assessment of what your true risk really is.

And besides, it is impossible to say precisely what a person is going to do in the future even if you did have the best mathematical model available or used Madame Mimi's crystal ball. There is no way it can be done.

At best, a credit score based on your credit report is a mathematical representation of what you are likely to do in the future in regards to credit behavior. However, this scoring system is what lenders are currently using to evaluate creditworthiness and it is already a standard part of lending so it is in everybody’s best interest to understand it and to learn how to take advantage of its many nuances.

So here is the problem.

Understanding credit is a complex undertaking. The credit score has so many sensitivities to how it can be influenced and manipulated to your benefit. In the beginning, the credit bureaus and the company that ran created the credit score, the Fair-Isaac Corporation, ran a tight-fisted unethical operation. Creditors weren’t even allowed to tell a customer what their credit score was and the whole credit scoring process was veiled in secrecy. The ordinary person could not even find out what was considered to be responsible credit behavior.

State legislatures and congressional action along with a few threats changed all of that. Although the mathematical models used to generate the credit scores is still a proprietary secret, today there is so much more openness about the factors that create it. As a result, millions of people have taken advantage of this newfound knowledge and awareness to improve their credit and get a better understanding of how the process works.

But more importantly, nowhere in your credit report or your credit score is there anything about your race or ethnicity. In fact, you are nothing more than a number which is the way it should be.

In the past, it wasn’t that way. In fact, it was ugly. Banks and creditors would red line a map of the undesirable neighborhoods (especially the segregated ones) so they could identify whom not to loan money to just because of where someone lived. Women as financial decision makers were also considered to be inferior especially in what was then a man’s world so bank managers could easily make arbitrary decisions on whom to loan money to.

When it came to discrimination, it was rampant during that unpleasant period in our history. The civil rights movement changed that which brought about an unprecedented era of personal wealth to minorities. Is it perfect? Of course not but modern legislation forbids such blatant discrimination and a change in cultural norms have made equality in lending commonplace in today’s society.

But what can be done about irresponsible credit behavior among minorities?

Instead of blaming the white man for a non-existent problem, it is time for civil rights advocates to step up to the plate and help educate their own communities about this issue. Only knowledge can empower someone to be an informed consumer instead of a hapless victim. And financial education is what is desperately needed in order to help minorities improve their own credit rating.

However, if civil rights activists continue to inflame racial tensions and incite class warfare, then they are nothing more than racial arsonists who are more interested in harming minorities instead of helping them.

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