24-06-2025
The Credit Gap: Reimagine Credit-Building For Marginalized Communities
Kevin Cohee, Chairman & CEO, OneUnited Bank, an award-winning CDFI and America's largest Black owned bank.
Credit is often seen as a simple numerical score—a summary of financial responsibility. For millions of Americans, however, access to credit remains a complex barrier to opportunity and economic inclusion. Across the nation, many marginalized and underserved communities find themselves locked out of the traditional credit system, a reality with roots in history and consequences that still ripple today.
Marginalized groups in the credit landscape are broader than often assumed. They include not only racial and ethnic minorities but also immigrants of many backgrounds, women, rural residents and low-income workers. Despite their diversity, these groups share common threads of systemic exclusion from traditional financial services, contributing to persistent inequities in wealth and opportunity.
A History Of Barriers To Credit Access
The challenges faced by these communities in establishing and accessing credit are not recent phenomena. They are the product of decades, and sometimes centuries, of exclusionary practices.
During the 20th century, redlining—a discriminatory practice institutionalized in the 1930s by the Home Owners' Loan Corporation—systematically denied mortgage lending in communities of color, regardless of individual financial qualifications. These entrenched racial wealth gaps persist today. Similarly, immigrant populations, despite contributing substantially to the economy, often arrive without recognized credit histories, encountering hurdles in establishing financial credibility in their new country.
Until the Equal Credit Opportunity Act was passed in 1974, women in the United States could be denied credit cards, loans or mortgages unless they had a male cosigner, regardless of income or financial independence. Meanwhile, rural Americans were frequently left out as financial institutions concentrated services in urban areas, limiting access to credit-building opportunities. Low-wage workers, despite stable earnings, often lacked the assets or formal financial histories that traditional credit models prioritize.
Each of these historical realities created systemic disadvantages that continue to impact the ability of millions to fully participate in today's economy.
When Alternatives Hurt: The Reality Of Predatory Lending
Faced with systemic exclusion from mainstream financial services, many underserved consumers have turned to alternative lending options—often to their detriment.
Payday loans are a particularly stark example. Marketed as short-term solutions for urgent cash needs, these loans can carry annual percentage rates (APRs) around 400%, according to the Consumer Financial Protection Bureau. For individuals with few other options, payday loans can rapidly spiral into cycles of debt, where borrowers repeatedly renew loans and pay far more in fees than they initially borrowed.
Similarly, other "alternative credit" products—such as fee-laden rent-to-own programs or high-cost subprime credit cards—often promise quick access to credit but ultimately deepen financial distress rather than helping individuals build sustainable credit profiles.
Predatory financial services prey on the very vulnerabilities created by systemic exclusion, exacerbating the financial fragility of marginalized communities rather than alleviating it.
The Promise Of CDFIs In Expanding Access
In contrast, Community Development Financial Institutions (CDFIs)—like my own bank—offer a model for inclusive credit expansion. Supported by the U.S. Department of the Treasury and other mission-driven investors, CDFIs specialize in providing responsible, affordable lending to individuals and businesses in underserved markets.
Unlike traditional banks that may prioritize established credit profiles and significant assets, CDFIs often evaluate borrowers based on alternative criteria, offering personal attention, customized credit-building programs and lower-interest loans. They play a vital role in restoring trust where mainstream institutions have historically failed and offer a practical bridge to broader financial inclusion.
Why Inclusive Credit Access Matters
Expanding credit access isn't just a moral imperative—it's an economic one.
When marginalized individuals can access fair and affordable credit:
• Homeownership rates rise, strengthening families and neighborhoods.
• Small businesses flourish, creating local jobs and revitalizing communities.
• Education becomes more attainable, leading to a stronger and more skilled workforce.
• Emergency preparedness improves, reducing societal burdens related to financial crises.
Inclusive credit-building is, fundamentally, an investment in America's shared prosperity. Strengthening the financial footing of all communities enhances resilience and dynamism across the entire economy.
Reimagining The Path Forward: Solutions And Approaches
True change demands innovative, inclusive solutions that address historic inequities while building sustainable credit opportunities. To that end, the following strategies offer a path forward:
Expand alternative data use: Encourage credit bureaus to include on-time rent, utility and mobile phone bill payments as part of credit scoring models, making visible the responsible financial behavior of millions.
Promote accessible credit-builder products: Develop affordable credit-builder loans and secured credit cards with transparent terms, designed specifically for consumers new to credit or seeking recovery from past financial hardships.
Support employer-sponsored financial wellness programs: Create opportunities for employers to offer small-dollar loans, emergency savings programs, and financial education that can help employees improve their credit standing.
Invest more in CDFIs and mission-led lenders: Increase public and private investment in CDFIs to expand their reach into rural, immigrant and low-income communities nationwide.
Enhance community-based credit education: Partner with local organizations to provide culturally relevant, accessible financial education tailored to the realities and needs of diverse communities.
Modernize credit scoring methodologies: Advocate for more flexible and equitable underwriting practices that consider broader measures of financial behavior beyond traditional FICO models.
Protect against predatory lending: Strengthen regulatory oversight and consumer protection laws to curb abusive lending practices that target vulnerable borrowers.
Creating A New Path To Credit Equity
Reimagining credit building for marginalized communities is not a small task, but it is a critical one.
It is time to acknowledge that the barriers preventing equitable credit access have been built into our financial system for far too long, and now, it's time to dismantle them. By investing in inclusive innovation, empowering underserved communities to thrive and ensuring financial access for all, we will not only open doors to opportunity but also unlock the full potential of our nation.
Let's build a financial system where credit is a bridge to opportunity, not a wall that keeps millions locked out. Together, we can create a future where economic success is within reach for every American.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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