YOUNGSTOWN, Ohio (WKBN) – Having a good credit history can influence many things in a person’s life. But is it harder to develop good credit if you come from a low-income area?
Studies show, in 2017, 38.64% of loan applications from low-income areas were denied, as opposed to 12.3% of loan applications denied from higher income areas.
“Banks base everything when they’re doing loans off the risk of the loan so, say what is my likelihood that I’m gonna get paid back. So all of us, especially if you’re in the lower class, the deck is stacked against you,” said Jim Horvatch, owner of Car Culture dealership in Niles.
In the 1930s, banks would practice what is known as “redlining.” It is when they would look at an area and decide whether or not that area was considered a risk for home loan approvals.
If they deemed it a risk, they would outline the area with red ink on a map. Although redlining was banned 50 years ago, some wonder if previous practices still affect people today.
The Washington Post published a study that showed banks would consider areas with minorities a higher risk when determining loan approvals. It also shows this had a ripple effect into areas that are now considered low income.
“We talk about the cycle of poverty and part of it is number one education and changing that game. But if students learn how to manage their finances, that’s the next step,” said East High School Principal Jeremy Batchelor.
The students at East High School now have the ability to learn about the importance of building good credit before graduating high school.
“They focus on everything from checking accounts to banking, to credit scores as well as even getting into some stocks and the stock exchange,” Batchelor said.
“There can certainly be an uphill battle if you’re not getting, you know, that kind of education somewhere,” said Brian Laraway, of Bury Financial Group in Boardman.
Statistics show, 15% of families in the U.S. spend more money monthly than they receive.
Learning to manage money at an early age can help prevent falling into a pit of bad credit.
“If they can learn those things, then they have a better chance and opportunity to not get themselves into credit issues and then also be able to be those individuals, those consumers who have power,” Batchelor said.