The lingering legacy of slavery: historical injustices and credit scores in the United States

Slavery and its immediate derivatives have created and contributed to institutionalized and persistent forms of inequalities in the United States. While policies have been introduced to address these historical inequalities, the lasting influences of slavery are still not fully quantified. One such system that was introduced to address racial discrimination in the credit market is the FICO credit scoring model. The model claims to be color-blind by not providing any explicit weight to an individual’s race, orientation, ethnicity, or age, but the model’s fundamental structure of scoring an individual’s historical behavior without accounting for the multitude of contextual historical factors that continue to influence the very foundation of our financial health, means that the system will only continue to penalize Black Americans and perpetuate persistent racial inequalities.
Utilizing historical data from the 1860 census and data from 2014-2021 for a variety of contemporary control variables, this research finds strong and significant evidence of a lasting legacy of slavery on populations with subprime credit scores. Further, through an instrumental variable specification, we find further evidence of this relationship while continuing to account for contemporary controls and state and year fixed effects. In the most stringent model, we observe that a 10% increase in the relative 1860 county slave population will result in an average increase in 0.7913 percentage points of the county population with a subprime credit score when holding all else constant.