Richard Florida is a co-founder and editor at large of CityLab and a senior editor at The Atlantic. He is a university professor in the University of Toronto’s School of Cities and Rotman School of Management, and a distinguished fellow at New York University’s Schack Institute of Real Estate and visiting fellow at Florida International University.
A new interactive from the New York Fed shows that when it comes to community credit, some are well ahead of others.
We very much take access to credit for granted in affluent societies. But it is a key—and neglected—aspect of America’s mounting socio-economic inequality. Without access to credit, we cannot afford so many of the things we need in life, from our cars and our homes to the education that shapes our earning power.
A new data series developed by the New York Federal Reserve provides important insight into this nation’s credit inequality gap. The analysis identifies the geographic imbalances in the shares of adults who have access to some sort of credit. It also examines the geography of “credit stress,” or where Americans have the worst and best quality credit. The report is based on Equifax credit report data for a longitudinal quarterly panel of anonymized individuals and households, based on a 5 percent representative sample of all American individuals with a social security number and a credit report.
The analysis also provides a series of interesting interactive maps of the geography of credit access and credit stress by state and county, covering the years 2005 and 2014, including the credit-crushing Great Recession. (You can play around with the maps yourself here.)
Even with the ongoing economic recovery, far fewer Americans have access to credit than they did in 2005. That year, close to 100 percent of Americans age 18 and over had a credit file and a credit score. But by 2009, at the height of the Great Recession, 6.9 percent of Americans did not have access to credit. And then instead of rebounding with the economic recovery, the share continued to fall—by 2013, 8.8 percent, or almost one in ten Americans, did not have access to credit. In 2014, that share went down slightly, to 7.5 percent.
This pattern varies widely across the country. The maps below, from the report, show the worsening inequality in access to credit since 2005. The states in darker green had more residents with access to credit in the time period, while the states in light yellow contained the most residents who struggled for access.
Clearly, the South and West are two regions that have been hit hard by the credit crunch. But it's important to note that this inequality occurs not only across states and regions, but within them. In fact, the unequal access to credit is substantially greater between counties than between states. In California, for example, as many as 20 to 27 percent of adults in the agricultural counties of Kings, Madera, and Merced had no access to credit, while in San Mateo, in the head of Silicon Valley, just 1.8 percent had no access.
The same inequality can be seen in credit stress. To get at this, the New York Fed developed a five-tier scale for gauging the severity of a community’s credit stress: weak, struggling, declining, improved, and good credit.
Consider the gap between Wisconsin, ones of the states with the least amount of credit stress, and South Carolina, one of the states with the most. Just 8 percent of adults in Wisconsin have “weak” or “struggling” credit, which means that they were overdue on bills by 60 days or more for all four quarters of the previous year, or 60 or more days overdue between one and three quarters. Compare that to 18 percent with the same status in South Carolina. Looked at another way, nearly 90 percent of Wisconsin residents have “good” credit, or are current or less than 60 days overdue on this bills, compared to just 73 percent in South Carolina.
As the chart below shows, 26 and 27 percent percent of residents in South Carolina’s Dillon and Williamsburg counties have weak and struggling credit, making them the most credit-stressed in the state. Just 61 and 59 percent, respectively, having “good” credit. But in Beaufort, South Carolina’s least credit-stressed county, just 12 percent have weak or struggling credit, and more than eight in ten adults have good credit.
Wisconsin is quite different. Its counties with the best credit—Calumet and Waukesha—have 93 and 92 percent of their creditors holding good credit. In Rock and Milwaukee, meanwhile, 83 and 80 percent of residents with credit have good credit, about the same as the least credit-stressed county in South Carolina.
America has grown increasingly unequal by income, and the gap has grown between what the haves and have-nots can afford to buy. But the nation is also increasingly cleaved by access to credit, which divides its people into those who invest—in homes and the neighborhoods that surround them, in moving elsewhere for better opportunity, and in educations that lead to better lives—and those who can't.