Can Credit Scores Determine Social Stability?
By John Hope Bryant, Founder, Chairman, and CEO, Operation HOPE, Inc.
What if we could solve many of our social ills here in Atlanta, and by extension, our state and the nation, with an examination of credit score data?
The average credit score in Georgia is 644. The 2015 FDIC National Survey of Unbanked and Underbanked Households reveals that 36.5% of our state’s households either do not have an account at an insured financial institution, or for those that have an account, alternative financial services (nonbank) were obtained in the past 12 months—an indicator of creditworthiness and access.
Often, lists ranking American cities with the lowest average credit scores are identical to the lists ranking cities with the lowest levels of hope and the highest levels of challenges. Is this a coincidence? Or, do credit scores give us insight into a domain of life that potentially can predict riots, economic decline, crime, and wellbeing—or lack thereof—of a metropolitan area?
Such an approach could potentially increase understanding around the need for financial dignity empowerment for all Americans. It would also reveal how consumer credit mindsets, including confidence in the banking system, frame locations of depressed economic energy and social strife, as well as, conversely, where new growth and stability will come from.
Operation HOPE recently announced a new research study to explore the relationship between consumer credit scores and community wellbeing, including safety, crime, tension, economic growth, and financial literacy. HOPE posits that communities with high credit scores have lower levels of crime, fewer homicides, and fewer instances of civil unrest than communities with low credit scores. The preliminary findings of the report, entitled, “Do 700-Credit-Score Communities Riot?” will be presented at the 2017 HOPE Global Forum, that will be held in Atlanta, April 10-12.
So, do 700-credit-score communities riot? HOPE believes they do not. In an era where credit scores—a calculated metric of a person’s financial history—are used as a screening tool that expands well beyond consumer credit, HOPE foresees yet another application: a predictive tool for community instability, economic decline, and criminality.
Through the HOPE 700 Credit Score Communities initiative, the focus on raising client credit scores to 700 and bringing financial uplift to communities, is at the foundation of all HOPE Inside programming.
Credit scores tap into personal characteristics that surpass a person’s creditworthiness. Research has shown that human-capital characteristics, such as education, cognitive and non-cognitive skills (e.g. self-control and perseverance), are the same characteristics that underlie credit scores. In addition, HOPE theorizes that credit scores also indicate an individual’s level of hope for the future, and that communities that suffer a deficit of hope are unstable, stagnant, and potentially dangerous.
Credit scoring techniques are used by many industries to facilitate risk assessment. Companies use credit scores to price cell phone contracts and cable TV bills, to set interest rates for college loans, to tier premiums for car insurance, and to advise eligibility for employment. Health insurance and life insurance companies incorporate credit scores into predictive models of health and longevity. However, little is known around how credit scores affect communities in the aggregate.
Is there a future Steve Jobs locked in Vine City, or a struggling community in Hattiesburg, Mississippi? You bet there is. But in a state that is not only the poorest state in America, in the case of Mississippi, but also has the lowest overall credit score of any state in America (right around 614 on average for the entire state), and where only 2.1% of all residents of the state make $200,000 or more a year—it may be hard for hope, opportunity, role modeling (of success) and aspiration to find him or her.
Beyond a potentially predictive model, answers to these questions could have significant implications for policy debates around community safety, economic growth, financial literacy and intervention strategies that could change the trajectory of failing cities. Can credit scores in the aggregate be a measurement of difficult-to-observe psychological traits and personal background information and thus be a predictive index with wide application? If the above hypotheses are found to be correct, financial literacy and credit counseling programs may prove to be intervention strategies that have consequences that reach far beyond positive financial behavior and improved creditworthiness.
About Financial Inclusion
Operation HOPE, Inc., powers the broadest financial inclusion network in the country. Through strategic partnerships with organizations like SunTrust Banks, Wells Fargo, and Coca-Cola, the nonprofit is making free enterprise accessible to all by equipping youth and adults with the financial training and tools to realize their aspirations and ensure their financial wellbeing. Through its core programs, Operation HOPE has provided financial dignity and economic empowerment to over 2.6 million individuals worldwide, and $2 billion in economic activity for the disenfranchised—turning check cashing customers into banking customers, renters into homeowners, small business dreamers into small business owners, and minimum wage workers into living wage consumers. Project 5117 is the organization’s multi-year four-pronged approach to combating economic inequality that aims to improve financial literacy, increase business role models and business internships for youth, and stabilize the American dream by boosting credit scores. The Atlanta Uplift 2020 initiative will escalate the organization’s services throughout the city to strengthen low- and middle-income families. For more information: www.OperationHOPE.org
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