Poor credit is a serious problem for low-income Americans.
Options for borrowing are limited, and people with poor credit pay more in fees when they do borrow, said Margery Austin Turner, senior vice president for program planning and management at the Urban Institute.
"Understanding credit and how to safely build credit is critical," Turner said in a webinar hosted by the Urban Institute. It can make a dramatic difference in people's financial futures, and help "move them out of poverty and into financial security."
Turner and a panel of policymakers explored some of the myths and facts about credit, and why options for low-income Americans should be expanded.
Better credit is key to helping low-income Americans keep more of the money they earn, rather than spending it on higher fees, Turner said.
Wealthier people have access to resources that can help manage credit issues, such financial planners, said Bob Annibale, global director of Citi Community Development and Inclusive Finance.
Poor credit leaves people behind: "It's not part of an inclusive, growing society," Annibale said. "People need a financial identity."
"If you don't have a credit card or an installment loan, you're not going to generate a score," said Ricki Granetz Lowitz, CEO and co-founder of Working Credit, a nonprofit that offers a financial education benefit to employees.
But many people who are struggling with the combination of low income and access to credit incorrectly believe that they should avoid credit altogether. They are, in fact, good money managers, Lowitz said, who want to use money prudently.
"What's so frustrating is that a lot of the best money managers hate the thought of having debt, having a credit card," Lowitz said. "If you can help this population establish credit without going into debt, they could do so quickly."
"The racial wealth gap is real," said Brenda Palms-Barber, executive director of the North Lawndale Employment Network. "Bridging that gap could improve the quality of life for folks in general."
Palms-Barber said it's more than likely that improving people's lives in poorer communities would have a ripple effect, resulting in stronger families and reduced crime. "When our communities do better, our country does better," she said.
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