Urban Wire Young Adults’ Credit Trajectories Vary Widely by Race and Ethnicity
Thea Garon
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A woman using a laptop with her credit card in hand.

Today’s young adults are the most racially and ethnically diverse cohort in US history, yet legacies of structural racism still shape their economic prospects.

Young adults’ divergent credit trajectories underscore this trend. A new Urban Institute analysis that draws upon millions of consumer records from a major credit bureau finds young adults in majority-Black and majority-Hispanic communities are more likely than their peers in majority-white communities to begin their adulthood with lower average credit scores. They are also more likely to see their credit scores decline as they age. These disparities are rooted in decades of discriminatory policies that have intentionally and systematically denied communities of color equal access to affordable financial services and wealth-building opportunities.

Without dedicated interventions, credit disparities among young people will likely grow, causing the racial wealth gap to widen. A comprehensive suite of policies that addresses the root causes of racial and ethnic disparities is needed to ensure every young person in America has an opportunity for a bright future.

Credit score disparities among young adults

Compared with young adults in majority-white communities, young adults in majority-Black and -Hispanic communities are more likely to begin their adulthood with lower average credit scores. (In this analysis, communities are considered majority Black, Hispanic, or white when more than 60 percent of residents identify as that race or ethnicity. We use the term “Hispanic” to align with the dataset but recognize it’s not necessarily inclusive of how all members of this group identify.)

Between ages 25 and 29, young adults in majority-Black communities have a median credit score of 582, compared with those in majority-Hispanic communities, who have a median score of 644, and those in majority-white communities, who have a median score of 687.

Vantage scores below 600 are considered subprime, so people with credit scores below that threshold are less likely to secure credit at affordable rates and are more likely to borrow high-cost forms of credit, such as payday loans, that can lead to cycles of debt and further erode credit scores.

Where young adults’ credit trajectories diverge

At the individual level, racial and ethnic disparities across credit outcomes become even more pronounced. Using a trajectory analysis, we examined credit scores among 18-to-29-year-olds with credit records from 2010 to 2021.

Approximately one-third (32.9 percent) of young adults in majority-Black communities, and more than one-quarter (26.2 percent) of young adults in majority-Hispanic communities saw their credit scores decline during this period, compared with 21 percent of young adults in majority-white communities.

These trends show significant proportions of young adults in Black and Hispanic communities are entering their prime earning and wealth-building years with deteriorating credit scores that will hinder their access to affordable and high-quality credit. Without access to wealth-building forms of credit, such as mortgages and student loans offered at favorable rates, many young adults in communities of color will miss out on important opportunities to build wealth and transfer assets to future generations.

Addressing deep disparities requires bold solutions

The disparities in young adults’ credit trajectories are the result of decades of discriminatory lending policies that began in the Jim Crow era and continued through the 20th century. They have systematically denied communities of color, particularly Black and Hispanic communities, equal opportunities to build wealth and share inheritances with future generations. As a result, Black and Hispanic young people are leading financial lives characterized by a higher degree of financial precarity than their white peers.

Without a holistic set of solutions, Black and Hispanic young people will likely fall further behind their white peers. These solutions could include targeted policies to reduce disparities in credit, such as improving the accuracy of credit reports, considering alternative data in credit models, and addressing ongoing discrimination in lending decisions. Because debt is a primary driver of wealth disparities, reducing disparities in credit outcomes would help close the racial and ethnic wealth gap.

But these solutions alone won’t reverse the effects of decades of systemic racism. Policies that help families build wealth, such as universal baby bonds (PDF), progressive childhood-development accounts, tuition-free public universities, and first-time homebuyer assistance are also needed to break the cycle of intergenerational disparities.

Only by embracing bold solutions that address the root causes of financial inequity can we ensure a brighter future for all young people in the United States.

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Research Areas Wealth and financial well-being
Tags Credit availability Family credit and debt Wealth gap Wealth inequality Economic well-being Racial and ethnic disparities Racial inequities in economic mobility
Policy Centers Center on Labor, Human Services, and Population
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