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A person’s credit report tells a story about their childhood.

New research, released last month by Harvard’s Opportunity Insights, shows that a strong predictor of an adult’s bill-paying habits — the main determinant of credit scores — is the environment in which they grew up. The study, based on a sample of more than 25 million Americans, reveals lifelong differences in repayment behavior emerging by early adulthood according to race, hometown, and socioeconomic class.

These habits proved surprisingly stubborn as individuals moved up and down the socioeconomic ladder.

“It turns out the credit bureaus are able to learn something about us by age 25 that is extremely persistent,” said co-author Jamie Fogel, a research scientist at Opportunity Insights.

A strong credit score, frequently defined as 661 or higher, is a key tool for economic advancement. It means greater access to loans at lower interest rates for education, cars, homes, or starting businesses.

A solid rating can also open other doors.

“Credit scores are also used to screen job applicants, renters, and even people looking to buy insurance,” Fogel noted. “So lacking a good score can shut down multiple opportunities all at once.”

Fogel and his co-authors set out to take an ambitious, population-wide look at disparities in access to credit and the financial management skills that make affordable borrowing possible. Anonymized records from a major credit bureau were linked with U.S. Census and tax data on roughly 1 percent of U.S. residents.

“We were able to get a representative sample while simultaneously zooming in on particular cohorts,” Fogel explained.

For people born between 1978 and 1985, parental data was also incorporated. “That means we were able to look at people’s parents’ income as well as where they grew up,” Fogel said. “Both turned out to be pretty important.”

Credit bureaus’ scoring algorithms, designed to predict the likelihood of default, are based solely on recent repayment history. The bureaus are legally prohibited from incorporating information on race, age, income, and location. But a growing body of evidence finds that demographic disparities still persist.

OI’s new study, with its big-data approach, yields powerful new insights. By age 25, the researchers found, Americans whose parents were in the lowest 20 percent of earners have an average credit score of 615. Those whose parents were in the top 20 percent averaged 725.

“Your parents’ credit score is extremely predictive of your own repayment,” Fogel noted.

Also at 25, Black Americans average credit scores that are nearly 100 points lower than white Americans and 140 points lower than Asian Americans.

What’s more, these disparities looked “almost identical” at age 65, Fogel said.

Controlling for income, by looking only at those from the lowest 25th percentile of parental earnings, revealed a still prominent 69-point gap between Black and white individuals. And the average credit score for Black Americans from the top 90th percentile of parental earnings is similar to whites with low-income backgrounds. 

There are almost certainly racial disparities in job stability, he added. “But we can restrict to people who are continuously employed at the same firm, with not too much income volatility. These gaps persist even then.”

Geographic patterns proved equally striking, suggesting that children absorb personal financial lessons from their broader community as well as from parents.

Those from the Upper Midwest, New England, and certain areas of the western U.S. average the highest credit scores and therefore benefit from lower interest rates. People from Appalachia and certain parts of the South have lower scores, with unmet borrowing needs.

A set of more granular analyses revealed hyper-local differences. The country’s highest overall credit scores (an average of 724) were found in Bergen County, New Jersey, just across the Hudson River from New York City. Baltimore averaged nearly 100 points lower as the locale with the country’s lowest scores.

A separate analysis, focusing exclusively on Americans who grew up in low-income families, confirmed the influence of place on repayment behaviors. In Brooklyn, white Americans from low-income families had the highest average scores (719) whereas individuals with similar backgrounds in the Indianapolis area saw the lowest averages (629).

Also illuminating were patterns observed in people who moved from a place like Brooklyn to a place like Indianapolis, or vice versa. Those who relocated in early childhood appeared more likely to absorb the debt-paying habits of their adopted community. But moving as a teenager meant retaining more influences from the birthplace.

“We don’t know exactly what it is,” Fogel said, “but there really is something you’re getting from your community that has a strong effect on your repayment behavior.”

In the paper, the co-authors also review possible explanations. For example, previous research documents the long-term behavioral effects of historic economic traumas, with the 1921 Tulsa Race Massacre offered as one example.

OI’s data also show that Black Americans and those from low-repayment areas are more likely to float cash to family and friends, with Black Americans also less likely than white Americans to receive assistance from parents. In fact, Black Americans are more likely to be the ones helping their elders.

Correlations with previous OI findings are especially suggestive. The geographic patterns of repayment, newly incorporated into OI’s online Opportunity Atlas, mirror previous work documenting regional and racial variances in access to the American Dream.

“Places that promote repayment are the exact same places that promote upward mobility,” Fogel observed. “We can see these places promoting repayment even when controlling for income.”

The co-authors don’t see an easy fix, noting that the current credit-scoring system understates repayment gaps by race, geography, and class. More accurate measures would likely exacerbate disparities, they wrote.

Instead, the OI team called for more social scientists to examine how race and childhood environment shape financial management skills for life.

“If we want to improve access to credit,” Fogel said, “we really need to understand what’s happening before people’s 25th birthday.”