There’s a lot of good news coming from Detroit these days, from a burgeoning urban farming scene to the flurry of entrepreneurial activity that has given residents some hope that this faded industrial titan may yet struggle to its feet after emerging from bankruptcy in 2015. Home values are ticking up, job losses have slowed, and there are encouraging signs of economic growth. But a new report from the Urban Institute serves as a sobering reminder of exactly how financially wounded Detroit still is: Fully two-thirds of its residents have subprime credit scores (or no scores at all).
Researchers combed through data from Experian, one of the three credit bureaus that compile individual credit ratings. These scores are used by banks and other institutions to make lending decisions about potential borrowers. Those with lower, or subprime, scores face higher interest rates and harsher terms when they try to obtain loans. Detroit’s share of these subprime borrowers is extremely high—more than twice the national average, and far worse than fellow Rust Belt burgs like Cleveland, Buffalo, Milwaukee, and Indianapolis. Only 21 percent of Detroiters have more favorable credit scores ranked as prime or more. (The next worse is Indianapolis, at about 39 percent.) And 68 percent of city residents are carrying delinquent debt, compared to a national average of 35 percent. “That’s a really striking statistic,” says Diana Elliott, a UI research associate and co-author of the study. “What comes through in this study is that Detroit residents are really in a more disadvantaged position.”
This is troubling, if perhaps unsurprising, news for those touting the Motor City’s long-awaited resurgence, since lousy credit is tangled up in a grim constellation of other financial woes, from an inability to finance home or car purchases to vulnerability to the predatory financial services industry. Without access to traditional banks or credit unions, subprime borrowers often fall back on payday lending operations, title loan scammers, rent-to-own outfits, and other businesses that have found a profitable way to tap into urban poverty.
Why Detroit? Elliott notes that the city was particularly hard hit by the subprime housing loan crash of 2008, but this remarkable concentration of financial ill health is really the result of decades of job loss, disinvestment, and population drain. “The more financially able residents were able to move out of Detroit, many to the larger metropolitan area,” Elliott says. Indeed, Greater Detroit is in vastly better shape, credit-wise: Look how much healthier the rest of Detroit’s metropolitan statistical area (MSA) is compared to Detroit itself—61 percent of the rest of the MSA’s residents have prime-or-better credit scores.
Detroit may also have some characteristics that make it particularly hard for low-income residents to claw their way back to financial health. It’s a big, spread-out city with poor public transit, so a car is almost essential for employment. Automobiles represent a huge expense for the working poor, and many dig themselves further into debt to finance them. “People are trying to do the right thing—they’re trying to get to a job. But their fiscal options are very limited,” Elliott adds.
The report points to several ways to address the problem, citing the city’s major workforce development initiatives and a promising program from the National League of Cities called Local Interventions for Financial Empowerment through Utility Payments, or LIFT-UP, which helps households pay back debt to utilities and offers free financial coaching. But the city has a long way to go in its journey back from the economic brink. One needs only look east to Pittsburgh to see how dramatically the fortunes of these two industrial towns have diverged in recent decades: 63 percent of Pittsburgh residents now enjoy credit scores ranked as prime or more—well above the national average of 55 percent. That’s a reflection of the city’s success in remaking itself as a post-steeltown tech and service economy.
Detroit’s version of that transformation, if it comes, depends on having residents who are fiscally fit enough to participate in the local economy again. That’s not happening yet. “The financial health of cities and residents,” says Elliott, “are completely intertwined.”