Credit Scores: Performance and Equity

Stefania Albanesi; Domonkos F. Vamossy

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arXiv · 2409.00296

Credit Scores: Performance and Equity

Stefania Albanesi·Domonkos F. Vamossy

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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.

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Stefania Albanesi, Domonkos F. Vamossy. 2024-08-30. Credit Scores: Performance and Equity. https://arxiv.org/abs/2409.00296

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