WASHINGTON–A new report on credit card debt from the Government Accountability Office (GAO) has found credit card terms vary with the racial makeup of cardholders’ neighborhoods.
The report specifically looked at race-related differences in credit limits, debt levels, and interest rates for those with credit cards, found that cardholders in majority Black or African American and Hispanic or Latino zip codes were likely worse than those in predominantly White zip codes.
“That is, cardholders in majority Black and Hispanic zip codes likely had lower credit card limits and paid higher interest rates,” GAO said in releasing its findings. “Other factors can impact credit limits and interest rates—for example, things like credit scores and income. But even factoring for those, we found that differences still existed across neighborhoods with different racial makeups.”
Making a Comparison
Comparing a sample of cardholders in majority Black and Hispanic zip codes to those in predominantly White zip codes, the GAO said it found:
- Credit limits for cardholders in majority Black and Hispanic zip codes were on average about $3,412 and $4,285 lower, respectively.
- Interest rates for cardholders in majority Black and Hispanic zip codes were on average about 1.3 and 1.4 percentage points higher, respectively.
Additional Findings
“When we looked at credit card use among majority Black and Hispanic zip codes in our data sample, we found that these credit card users owed less on their cards but carried that balance for a longer period than accounts in predominantly White zip codes,” GAO said. “Although these card users carried less debt, they may have to pay more interest because they carried the debt longer. If these card users also have a lower credit limit, their credit utilization rate—the percent of their available credit in use—is higher. This can lead to lower credit scores and a higher cost of credit across the board.”
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