In its 21st Annual Mortgage Lending study, the Pittsburgh Community Reinvestment Group (PCRG) highlights several barriers faced by blacks when trying to obtain home loan financing, but the barrier of poor credit stands out well above the others.
Though the report lists poor credit history/rating as the main reason for all mortgage loan denials, the numbers for African Americans are significantly higher at 58 percent — 20 percent higher than for white applicants, 13 percent higher than for Hispanic applicants and more than 30 percent higher than for Asian applicants.
Ernie Hogan, PCRG executive director, said the data, covering lending between 2005 and 2013, supports anecdotal evidence that the city’s poor and minority residents are not benefiting from the economic recovery to the same extent as other groups.
“Where you live and your ethnic background, more than anything else, seems to have been an indicator of whether or not you could get a traditional or subprime loan,” he said.
Robert Reaves, a foreclosure prevention counselor for the Urban League of Greater Pittsburgh, is less certain.
“The people who make loan decisions want everything black and white. I can’t say to what degree, if any, race plays a part,” he said. “Maintaining good credit is critical, but of course that’s harder for low-income people because medical emergencies, lost jobs, and illness can all lead to late payments.”
Reaves said the longer payments are delayed, the greater the negative effect on one’s credit score. Not only can poor credit determine whether you get a mortgage, but also whether you can get a car loan and at what rate. It can also impact job applications, as employers increasingly use credit reports to gauge someone’s reliability.
Reaves said monitoring your credit history, which is compiled by the three reporting agencies (Equifax, Experian and TransUnion), is vital because it may contain incorrect data.
“You need to write them, document your position, and follow up,” he said. “It can be a little laborious, and even if you’ve cleared up an old debt, how long it took will stay on the report. That stuff is supposed to be gone after five years, but again, maintain vigilance and make sure it is.”
African American Chamber of Commerce President and CEO Doris Carson Williams said income disparity is likely a factor. She said she has seen this problem with small businesses trying to access more capital.
“Get your report, get together with the bank, write to reporting agencies and individual creditors,” she said. “If you know you’ll be late, call them and let them know. Be proactive.”
Another ex-banker, former CEO of Landmarks Capital and past Fannie Mae Director Howard Slaughter, said he believes the higher poor credit rating for blacks is almost entirely due to income disparity.
“The median household income for whites is 20 times higher than for African Americans and 18 times higher than Latinos,” he said. “That’s a strong predictor of loan approval.”
But Slaughter noted that credit history only accounts for 35 percent of someone’s credit score. The other percentages are:
- 35 percent based on payment history, how late and how often late
- 30 percent based on total debt, the number of credit cards and loans
- 15 percent based on duration of credit, the longer you have an account the better
- 10 percent based on new credit
With that knowledge, there are some simple things people can do to improve their credit, said Slaughter.
First, eliminate some of your credit cards.
“If you have four credit cards, even if you pay on time and none are maxed, your credit will be scored as if you had maxed them all out because you could do that tomorrow,” he said. “Get rid of as many as you can.”
But there’s a caveat. Don’t get rid of the oldest one, because duration is 15 percent of your score. The new credit portion can be tricky because it can be easily ruined for seemingly innocuous reasons.
“Say you go to by a new car,” Slaughter said. “The salesman sends your application to four lenders. He’s just trying to get you a deal, but that’s four inquires, each one negatively impacting your score, and that’s just one dealer.”
When you need to repair your credit, Slaughter advises tackling the smallest debt first, closing it, and moving to the next one.
There’s one other thing you can do.
“Let’s say you had a problem four or five years ago,” he said. “You can put a 100-word statement into your credit reports explaining the situation. Lenders look at that in a positive manner. Most people don’t know you can do that.”
Slaughter, who is also chair of the Urban League’s Banking on Pittsburgh initiative, will begin teaching courses on financial literacy at the Community College of Allegheny County in the spring.
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