Credit Constraints: The Effect of Race/Ethnic Group

Abstract

About 20% of U.S. households are credit constrained. This research analyzes credit constraints among those who have applied for credit and controls for the effects of past credit behavior on being credit constrained. It is the first to identify the impact on being credit constrained of being Hispanic separately from other racial/ethnic groups. We first employ a simple empirical multivariate analysis used by previous researchers, and find that Black households were more likely than otherwise similar White households to be credit constrained, but Hispanic households were not significantly different from White households. However, because many households considered “not credit constrained” had not applied for credit, we limited a second model to households that had applied for credit in the past five years and found that both Hispanic and Black households were more likely to be credit constrained than otherwise similar White households. In a third model, also limited to households that had applied for credit, we controlled for financial behavior problems in addition to household characteristics and found that the difference between Black and White households in the predicted credit constraint rate was slightly smaller than in the second model, but the difference between Hispanic and White households was larger than in the second model. These results from household data supplement analyses based on lender data, providing some evidence of discrimination against minority groups and/or unmeasured characteristics limiting access to credit among those households.