In a report to Congress that’s certain to generate controversy, a new Federal Reserve study concedes credit scores vary “substantially” among different racial and ethnic groups.
The study, mandated by Congress in 2003, looked at a statistically accurate sample of 301,536 people’s ethnicities and credit scores.
Lawmakers ordered the study because critics have long charged that credit scores are biased against African-Americans, Hispanics and other minorities.
But after a massive, multi-year review of three different credit-scoring systems – including one the Fed’s own economists created – researchers concluded that:
Credit scores are highly accurate in predicting future payment performance.
Credit-rating systems aren’t inherently biased, although African-Americans and Hispanics do have lower average scores than non-Hispanic whites and Asians.
The types of loans that various ethnic groups lean toward “do not appear to be the source of differences in (payment) performance once (the) credit score is taken into account.” This counters some activists’ claims that African-American and Hispanics’ credit scores suffer because the mortgage industry steers minorities into risky subprime mortgages.
Some ethnic groups’ payment records are better – or worse – than what their average credit scores suggest.