Self-Fulfilling Credit Scores

Victor Duarte and Julia Fonseca

No 35508, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A decline in credit scores can worsen the borrower's financial position, making default a self-fulfilling prophecy. We estimate the causal effect of credit scores on default using a rule that counts multiple inquiries within 14 days as one, moving scores without changing credit reports. Regression discontinuity estimates around the 14-day cut-off show that an additional counted inquiry lowers scores by five points on average. Default does not respond among consumers with clean records, but rises by 3.2 percentage points over two years among those with prior derogatories. For these consumers, at least 13 percent of the relationship between scores and default is self-fulfilling. We show that scorers would want to limit self-fulfilling defaults if their objective is forecast accuracy, but not if it is separating defaulters from non-defaulters, because that objective rewards the score for the defaults it causes.

JEL-codes: C53 D18 D82 G24 G51 (search for similar items in EconPapers)
Date: 2026-07
Note: CF PE
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