Critics Attack Study That Looked at Credit of Blacks vs. Whites


A Freddie Mac study concluding that far more black people have bad credit than white people, even when both have the same incomes, has come under attack in Congress, and some experts have questioned whether it oversimplifies a complex issue.

The study’s authors defended their conclusions but said they probably should have chosen language other than “bad credit” or “good credit” because they were trying to say whether people had trouble paying their bills.

The study of 12,000 Americans with incomes of as much as $75,000 received wide media coverage when it was released last month by Freddie Mac, a federally chartered agency that provides capital for mortgage lending. It is one part of a new program to teach minorities how to improve their credit, in partnership with the National Assn. for the Advancement of Colored People, the National Urban League and five historically black colleges.


The researchers, relying on data from credit reports, designated people as having “bad credit” if they had two bills overdue more than 30 days in the last two years, one bill more than 90 days late, a lien, a judgment or a bankruptcy. The data showed that a higher percentage of African Americans with incomes of $65,000 to $75,000 had “bad credit” than did whites with incomes below $25,000.

The criteria they chose, researchers said in an interview, do not reflect the full range of what credit agencies look at, which includes life circumstances and the borrower’s long-term repayment pattern.

“This issue is not that this would get you denied a loan, but this reflects empirical evidence of the difficulty people have making their payments,” said Peter Zorn, director of financial strategy and policy analysis for Freddie Mac. The quotation marks around the words “bad credit” and “good credit” “were supposed to signal that it was not pejorative,” he said.

But U.S. Rep. Maxine Waters (D-Los Angeles) said the report is flawed on a number of grounds. She was joined at a news conference last week by U.S. Rep. Gregory Meeks (D-N.Y.) and representatives of two advocacy groups, the Washington-based Assn. of Community Organizations for Reform Now, or ACORN, and the National Fair Housing Alliance.

Waters, a member of the Banking and Financial Services Committee, said the Freddie Mac report concluded that minorities were responsible for their credit problems, which runs counter to a large body of research showing widespread racial discrimination in the lending and credit industries.

“In other words,” she said, “we are a credit risk because no matter how much money we make, we are also too stupid and undisciplined to know how to spend, plan and save.”


Freddie Mac, she said, omitted factors “that clearly demonstrate that African Americans and whites are not similarly situated in this society and especially not in the world of credit.”

Freddie Mac and its partners in the study issued a statement responding to Waters, saying they also are concerned about discrimination issues. Officials from two of the colleges defended the study.

“It’s a truth,” said David Swinton, president of Benedict College in South Carolina. “Why should anybody be upset at a truth?”

However, Antoine Garibaldi, provost at Howard University, said he is concerned that some people might wrongly draw the conclusion that African Americans cannot manage their money, partly because the study, which will include more detailed statistical information, has not been completed.

Economist Andrew F. Brimmer, who has served on numerous corporate and banking boards, said he is concerned that the new study could give lending institutions an excuse to pull back from efforts to expand services to minorities.