Does credit scoring produce a disparate impact?

Robert B. Avery, Kenneth Brevoort and Glenn B. Canner

No 2010-58, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The widespread use of credit scoring in the underwriting and pricing of mortgage and consumer credit has raised concerns that the use of these scores may unfairly disadvantage minority populations. A specific concern has been that the independent variables that comprise these models may have a disparate impact on these demographic groups. By \"disparate impact\" we mean that a variable's predictive power might arise not from its ability to predict future performance within any demographic group, but rather from acting as a surrogate for group membership. Using a unique source of data that combines a nationally representative sample of credit bureau records with demographic information from the Social Security Administration and a demographic information company, we examine the extent to which credit history scores may have such a disparate impact. Our examination yields no evidence of disparate impact by race (or ethnicity) or gender. However, we do find evidence of limited disparate impact by age, in which the use of variables related to an individual's credit history appear to lower the credit scores of older individuals and increase them for the young.

Keywords: Credit scoring systems; Mortgage loans; Discrimination in consumer credit (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-age and nep-ure
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Does Credit Scoring Produce a Disparate Impact? (2012)
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