How the Credit System Perpetuates Economic Inequality

A credit score is a tool used by lenders to evaluate an individual’s financial health based on their ability to make payments on debt. Lenders frequently rely on the Fair Isaac Corporation (FICO) rating system with scores that can range from 300 to 850 – the higher the score, the better in terms of a person’s ability to attain favorable terms with new credit.

Why Your Credit Score Matters

In the United States, your ability to succeed is highly connected to your ability to receive credit – be that for a student, auto, or home loan, apartment rental, or a variety of other economic measures.

People who have good or excellent credit scores are more likely to be able to pursue wealth opportunities by making a home or business investment as well as receiving more favorable credit terms, which affects the amount a borrower ends up repaying throughout the course of the loan terms.

Having a history of new or poor credit unfortunately can lead to an unfavorable cycle that includes:

• Being denied credit outright.
• Being offered only sub-prime loan rates, which means a borrow is faced with higher fees, higher interest rates, and all around less favorable loan terms.
• Facing an inability to withstand financial shocks or economic downturns.
• Becoming a victim of predatory lending practices.

This all leads to a more expensive loan and more difficult time paying it off, thus perpetuating the cycle of economic inequality.

Moreover, lenders frequently prey on individuals with new or poor credit and force them into an even more difficult financial situation by slapping on additional fees, penalties, or applying other unfair, deceptive, or abusive practices. While the Truth in Lending Act (TILA) and Home Ownership Equal Protection Act (HOEPA) were drafted to curb such abuses, we still see consumers being taken advantage of all-too-often. 

If you have questions about consumer protection rights, how to combat fraud and fight back against inequity, don’t delay in calling us. We’ll set up a confidential appointment to discuss your rights.