Middle-class Blacks are using credit to help cover their basic living expenses, according to a report from the NAACP and public policy research organization, Demos.
In the recession’s aftermath, 79 percent of middle-class African-American households carry credit card debt.
“Everybody needs credit but it should be a tool to help your economic life” said study co-author Dedrick Asante-Muhammad, senior director of the NAACP Economic Department. “Now we see it as a drain on African Americans trying to gain a middle-class life.”
Released earlier this month, the report, “The Challenge of Credit Card Debt for the African-American Middle Class,” found that 42 percent of households are relying on their cards for basic living expenses when income and savings fall short.
“Use of credit in long term investments for the future is a specific African American problem, largely because of the historical impact of racism in wealth building, and current racial bias in lending,” said study co-author and Demos policy analyst Catherine Ruethschlin.
The seeds for economic disparities seen today were sown over 50 years of redlining, blockbusting and predatory lending. Today, Black Americans have $1 in assets for every $20 owned by White Americans, and, according to the study, more than half of it is tied to home ownership.
Only 55 percent of the study’s Black respondents own their home, compared to 72 percent of White respondents.
According to the report, 80 percent of Black college grads took out some amount of loans for their education, compared to 65 percent of Whites. Credit debt as a result of student loans can then affect career outcomes, as credit checks are sometimes part of the hiring process. Those with poor credit are often relegated to low-paying jobs due to this dubious but legal practice.
In the study, an overwhelming 99 percent of indebted moderate-income African American households who had expenses related to starting or running a business in the past three years still carry that expense on their credit card bill.
Interestingly, Black and White households reported different reasons for poor credit: 44 percent of White respondents cited late mortgage payments and using all or nearly all of their credit lines while 40 percent of Black households cited late student loan payments and credit report errors.
However varied the causes, middle class credit use and debt levels are similar across race—it’s the consequences that raise eyebrows.
The report found that African Americans and Whites had similar rates of card default, late payments, bankruptcy, eviction, and repossession. However, 71 percent of African American households had been called by bill collectors, compared to 50 percent of White households. African Americans in the report were also more likely to report card cancellations, limit reductions, or credit rejections in the last three years (53 percent of Black respondents compared to 36 percent of Whites).
Even if credit score isn’t a problem, indebted African American households face higher interest rates, reporting an average APR of 17.7 percent on the card where they carry the greatest balance compared to 15.8 percent for White households.
Despite this, African American respondents were less likely to moderate their card use as a result of higher rates, which suggested to the authors that Black households have less of a choice in staying afloat.
“…If you look at the report, you see that they’re using credit for basic living expenses,” Asante-Muhammad points out. “The problem isn’t around spending, the problem is income inequality, wealth inequality and a decline in opportunity for middle class African Americans as a whole.”