Only a minority of people can completely live without credit in the American society. It is how many people fund their major purchases, from houses to vehicles. Similarly, credit is a tool many people heavily employ to start their businesses or cover their tuition fees. In essence, for many Americans, credit is practically indispensable. However, it is unfortunate that despite the clear importance of credit, many people lack adequate access to it. This is particularly the case with people who live with disabilities.
For several reasons, people with disabilities tend to have less access to credit. The result of this is that they generally have to opt for more expensive loan options. In this article, we will be considering the various factors contributing to the inaccessibility of disabled people to credit. Let’s get into it…
Understanding the Lack of Access to Credit among People with Disabilities
Studies have shown that disabled people, compared to those without disabilities, are unable to obtain credit. For instance, in 2019, 20.7% of households with a disabled person had unmet credit needs compared to 12.1% of households without a disabled person. Similarly, according to a National Disability Institute (NDI) report, people with disabilities are less likely to have a credit card, less likely to access common types of credit, and more likely to use nonbank borrowing.
Essentially, not being able to leverage conventional forms of credit, disabled people generally have to settle for less affordable credit. This situation may lead to a number of outcomes. An example of such an outcome is that people with disabilities cannot raise $2,000 for an emergency compared to people without disabilities.
Furthermore, while it is established that disabled people generally face more barriers in accessing conventional credit, some people with disabilities face even more barriers than others on the basis of race, as illustrated by the NDIs fact sheet Disability, Race and Ethnicity: Inequality in Access to Bank Credit.
So why are people with disabilities less likely to access credit?
Factors Affecting Disabled People’s Access to Credit
While some people with disabilities have well-paying jobs, there is no doubt that the vast majority tend to be less educated, have lower incomes, and have higher expenses. These factors significantly affect credit scores and, consequently, access to credit. Ultimately, the poorer socioeconomic outcomes considerably impact their ability to obtain credit.
In many ways, a disability can impact an individual’s financial health. Some of these disabilities may be caused due to an accident or a health condition. Such sudden health issues could affect a person’s financial standing and their access to credit in many ways. For instance, a disability-related health emergency may cause a person to borrow to take care of their health expenses. Similarly, these emergencies may affect the ability of an individual to pay off debts taken before the onset of the disability. These conditions may also impair the person’s ability to work, further reducing their income.
There are a host of other barriers that people with disabilities may face. First are the misconceptions on the part of lenders. Some lenders may have the wrong predisposition about the financial standing and creditworthiness of disabled people. Similarly, some lenders fail to make reasonable accommodations to facilitate the access of people with disabilities to credit.
Other factors may include the inability of many disabled people to plan and structure their credit long-term. This is generally thanks to the unpredictable and disruptive nature of many disability-related conditions.
Undoubtedly, there are many challenges people with disabilities face when trying to get credit. Nevertheless, the situation is not hopeless. There are various steps people with disabilities can take to improve their access to credit. Let’s consider some:
- Improve financial literacy: Given the difficulty people with disabilities face while accessing credit, it is essential to be self-educated regarding financial best practices. This includes learning the best ways to handle credit cards to optimize credit scores. Similarly, it is essential to learn how to go about setting aside emergency funds.
- Leverage specialized credit products: There are several credit products intended for people with disabilities, which may take into account their unique financial position. A number of Community Development Financial Institutions (CDFI) specialize in providing these products to people who lack access to financing.
- Consider other alternative loan options: There are some platforms that allow people with disabilities to completely avoid the lengthy processes of obtaining bank credit, especially with a low credit score. With these platforms, people with disabilities may access loans that have guaranteed approval with no credit check .
So many factors contribute to the inaccessibility of disabled people to credit. Needless to say, more mainstream financial institutions must consider these issues and make the necessary accommodations in their credit products. At the same time, people with disabilities should adopt effective money management habits that could help them achieve strong credit and leverage this credit to improve their financial position.
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