Credit Scores: Performance and Equity

Stefania Albanesi and Domonkos F. Vamossy

Papers from arXiv.org

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.

Date: 2024-08
New Economics Papers: this item is included in nep-ban, nep-big and nep-ure
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http://arxiv.org/pdf/2409.00296 Latest version (application/pdf)

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Working Paper: Credit Scores: Performance and Equity (2024)
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