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Research Paper

Pulse Points: Disparities in Credit Scores and Length of Credit History

How is credit history related to race and ethnicity, and what steps can financial service providers take to address credit health inequities?

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By Andrew Warren, Wanjira Chege, Kennan Cepa, Ph.D., Necati Celik, Ph.D.

Program:

Financial Health Pulse
Category:

Credit, Equity, Measurement

Wednesday, December 11, 2024

Pulse Points: Disparities in Credit Scores and Length of Credit History

Assessing Racial and Ethnic Credit Health Inequities

Credit scores are used by lenders in hundreds of millions of underwriting decisions a year, directly affecting access to mortgages, credit cards, auto loans, and other credit.¹ Structural racism in the U.S. has directly impacted credit access and wealth along racial and ethnic lines, and previous studies have established that Black and Latinx consumers generally have lower credit scores than white and Asian consumers.^{2, 3, 4, 5} But while length of credit history is an important factor in determining credit scores, racial disparities in length of credit history are not well understood.

In this report, we debut an innovative data source to help understand racial and ethnic disparities in credit health – credit records matched to a nationally representative survey from our Financial Health Pulse® research initiative. Using this information, we estimate racial and ethnic gaps in credit scores and explore an important source of credit score disparities: differences in length of credit history. This data can help financial service providers design interventions to address inequities and support customers in their credit journey.

What You’ll Learn

Read the full report for a deeper dive into racial and ethnic gaps in credit scores and length of credit history.

Racial and ethnic disparities in credit scores are vast, with over a third of Black consumers’ scores in the subprime range

Asian and white consumers have longer credit histories than Latinx and Black consumers, which likely contributes to credit score disparities

Black consumers are less likely to have received help from friends or family in lengthening their credit history

Data Spotlight

Asian and white consumers have longer visible credit histories.
Average age (in months) of oldest account on credit report by race and ethnicity, controlling for age of consumer.

Asian: 19 years, 10 months; White: 18 years, 5 months; Latinx 16 years, 2 months; Black: 13 years 5 months

Notes: Financial Health Pulse 2022 survey data merged with credit data. Estimates are from linear regressions controlling for the respondent’s age and holding age at its mean. 46 consumers had no accounts on their credit records and were excluded from the analysis. Other racial identities are not shown due to small sample sizes.
¹ Statistically significant relative to Asian at p < .05
² Statistically significant relative to white at p < .05
³ Statistically significant relative to Latinx at p < .05
⁴ Statistically significant relative to Black at p < .05

About Our Methodology

This study is based on nationally representative, probability-based Financial Health Pulse survey data linked to credit records from one of the three major Consumer Reporting Agencies (CRAs). In our Financial Health Pulse surveys, we ask for respondents’ consent to anonymously link their survey responses to deidentified information from their credit records from a major CRA. Upon consenting, USC’s Center for Economic and Social Research securely provides the respondent’s name, date of birth, and address to the CRA, which attempts to find a matching credit record. In 2022, 62% of respondents consented, and the CRA matched 88% of those respondents to records. Information summarized from that credit record is scrubbed of personal identifiers and delivered to FHN for analysis on a secure server with restricted access.

The resulting dataset contains a wealth of information about the consumer’s current and past credit use, captured in the same month they took the Pulse survey. In this report, we use data from the 3,368 respondents who responded to the 2022 Pulse survey, reported their racial and ethnic identity, and for whom we have 2022 credit data. For more background on the report’s methodology, please see the full report.

About the Financial Health Pulse® and Pulse Points

Since 2018, the Financial Health Network has conducted the Financial Health Pulse® research initiative. The Financial Health Pulse combines probability-based, longitudinal survey data with administrative data, with the goal of providing regular updates and actionable insights about the financial lives of Americans.

Pulse Points are short research reports released multiple times a year as part of the Financial Health Pulse research initiative. Pulse Points are designed to explore specific, timely topics related to financial health. To see more of our Financial Health Pulse research, including Pulse Points on student loans, natural disasters, and more, please visit our Pulse Research page.

Our Funder

The Financial Health Pulse is supported by the Principal Foundation. The findings, interpretations, and conclusions expressed in this piece are those of the Financial Health Network and do not necessarily represent those of our funders or partners.

Endnotes

Christina Gibbs et al., “Consumer Credit Reporting Data,” National Bureau of Economic Research, August 2024.
Board of Governors of the Federal Reserve System, “Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit,” August 2007.
Jung Hyun Choi et al., “Reducing the Black-White Homeownership Gap through Underwriting Innovations,” Urban Institute, October 2022.
Urban Institute, “Credit Health during the COVID-19 Pandemic,” March 2022.
Neil Bhutta et al., “How Much Does Racial Bias Affect Mortgage Lending? Evidence from Human and Algorithmic Credit Decisions,” Board of Governors of the Federal Reserve System, August 2022.

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