Credit Scores: Performance and Equity

Stefania Albanesi and Domonkos F. Vamossy

No 32917, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Credit scores are critical for allocating consumer debt in the United States, yet little evidence is available on their performance. We benchmark a widely used credit score against a machine learning model of consumer default and find significant misclassification of borrowers, especially those with low scores. Our model improves predictive accuracy for young, low-income, and minority groups due to its superior performance with low quality data, resulting in a gain in standing for these populations. Our findings suggest that improving credit scoring performance could lead to more equitable access to credit.

JEL-codes: C45 D14 E27 G21 G24 G5 G51 (search for similar items in EconPapers)
Date: 2024-09
New Economics Papers: this item is included in nep-ban, nep-big, nep-ipr and nep-ure
Note: EFG
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