Community Dividend

Report examines credit use in low-income markets

Published July 1, 2007  | July 2007 issue

Credit usage among lower-income consumers varies widely across the country, according to a recent report from the Brookings Institution's Metropolitan Policy Program. In Borrowing to Get Ahead, and Behind: The Credit Boom and Bust in Lower-Income Markets, Brookings researchers describe national trends in credit use among lower-income consumers and examine how those trends are reflected in 50 major metropolitan areas in the U.S. For purposes of the report, "lower income" includes all households that rank in the bottom quarter by income.

The report's analysis of national credit trends is based on data from the 1989 and 2004 editions of the Survey of Consumer Finances, which were conducted by the Board of Governors of the Federal Reserve System, in cooperation with numerous other federal agencies. Credit information for the 50 metropolitan areas was taken from a 2005 sample of anonymous TransUnion credit reports from 14.1 million U.S. consumers. The credit reports listed three types of debt: mortgage loans; revolving loans, such as credit cards; and installment debt, such as auto loans and student loans.

The report reveals that over 55 percent of lower-income households were in debt in 2004, up from a rate of 45 percent in 1989. The total amount of debt held by lower-income households increased 308 percent during the same period. Although credit card usage among lower-income households increased from 18 percent in 1989 to 32 percent in 2004, most of the debt total consists of mortgage financing. In addition, the report shows that the use of credit among lower-income households varies widely by geographic region and depends on local rates of divorce, unemployment, insurance coverage, immigration and other factors. The highest levels of indebtedness are found in the most affordable areas of the country—perhaps because consumers in areas with low costs of living are likely to view major purchases like houses and cars as being within their means, and are therefore likely to take on debt to acquire those items. Delinquency rates vary by region, too, but in less predictable ways. Nationally, 7 percent of lower-income borrowers were behind on their mortgage payments in 2005.

To access the report, visit