When thinking of credit, what comes to mind? You would not be blamed for immediately having credit cards, mortgages and credit scores come to mind. When many — perhaps even most — Americans think of credit, they immediately think of their past decisions that created the credit history that affects the ability of a person to borrow, quantified in our credit scores.
For many Americans — those with solid credit histories and good credit scores (70 percent of Americans have credit scores considered to be “good”) — getting access to credit is a matter of a quick bank application. For growing percentages of Americans, however, access to credit is much more difficult.
Worse, it seems we have been getting credit entirely wrong for this group. A new study suggests that we might be. And if we are, the potential fallout is huge.
The ability to access credit has historically been thought of as a personal issue. Those with a history of paying money owed in a timely fashion have a higher credit score and as a result, can access credit when needed. Many others, however, have had a rougher go and often, for circumstances outside their control, they have been unable to pay back owed money on time. As a result, these same individuals have a lower credit score and are frequently denied credit when needed.
You, like many others, might think this system makes sense, but it is often more complex. For the first time, research has demonstrated that there may be a measured link between credit insecurity, defined as the state of being without reliable access to money or the ability to borrow money when an urgent need arises, and food insecurity, which is the state of being without reliable access to sufficient, affordable and nutritious food.
You might be wondering why this link may be significant, and the answer is because of how we think about these two conditions that negatively affect tens of millions of Americans.
Food insecurity is understood to be a structural problem that is heavily dependent on geography, and now, we have evidence that credit insecurity is, too.
If it is the case that credit insecurity, like food insecurity, is a structural problem linked to geography, it is critical that we start thinking of policy solutions to the situation in a similar fashion.
Take food deserts, for example. In no universe would anyone want to go into an area that has few, if any, food options and purposefully eliminate any sources of food — even suboptimal food options — especially when the net result is people going hungry.
We correctly understand that reducing available options to those who need them only exacerbates the problem for people who can least afford them. Yet that is precisely what some of the nation’s policymakers propose we do with credit insecurity.
Lack of access to credit directly affects families’ ability to make investments needed to grow wealth, from housing to higher education to starting a business. Credit insecurity often also means families cannot respond to and effectively manage financial hardships and keep up with their basic needs.
With the demonstrated significant correlation between credit and food insecurity, policies addressing one should take the other into account. In addition, both must be approached as the structural — not individual or personal — problems.
Ignoring how food insecurity and credit vulnerability resemble and may influence each other means failing to address basic and persistent harms to the most vulnerable Americans. Policymakers who propose solutions to expand access to credit without considering that credit insecurity is not personal, it is structural, and might unintentionally slam the door in the faces of the most vulnerable Americans.