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Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit

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Submitted to the Congress pursuant to section 215 of the Fair and Accurate Credit Transactions Act of 2003
August 2007

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Contents

• Executive Summary
• Overview of the report
  • Overview figures

• Introduction
• Scope of the Report
  • Public comment on the study
  • Approaches considered in conducting the study
  • Types of credit-scoring models
  • Reasons for focusing on generic credit history scoring models
• General Background
  • Credit-risk evaluation systems
  • Emergence of credit scoring
  • Changing patterns of credit use
  • Credit-reporting agencies
  • Developing and estimating credit-scoring models
  • Generic credit history scores
  • The current uses of credit scores
• The Effects of Credit Scoring on the Availability and Affordability of Credit
  • Expected effects of credit scoring
  • Evidence on the effects of credit scoring
  • Evidence from the Survey of Consumer Finances on the effects of credit scoring on access to credit and on the use of credit
• Credit Scoring and Demographic Groups: Defining Differential Effect
  • Discrimination and lending markets
  • Defining differential effect for this study
• The Data and Model
  • Data used for this study
  • Developing the credit-scoring model used in the present study
  • Estimating the model
  • The FRB base model
• Findings on Loan Performance and Credit Availability and Affordability
  • The three credit scores used in the study
  • The distribution of credit scores
  • Multivariate analysis of differences in credit scores
  • The stability of credit-score differences over time
  • Credit scores and performance
  • Credit scores and credit availability and affordability
  • Accounting for economic and financial factors not available in this study
• Findings on Differential Effect
  • Correlations between credit characteristics and both performance and demographics
  • Attributing differences in mean credit scores across different populations to specific credit characteristics included in the FRB base model
  • Dropping credit characteristics from the FRB base model
  • Adding credit characteristics to the FRB base model
  • Addressing differential effects using race-neutral and age-neutral credit-scoring models
  • Implications of finding differential effects
• Limitations of the Analysis

• Appendix A: Section 215 of the Fair and Accurate Credit Transactions Act of 2003
• Appendix B: The 312 Credit Characteristics in the TransUnion Database of Credit Records Supplied for This Study
• Appendix C: The 19 Credit Characteristics Selected from the TransUnion Database for Use in the FRB Base Model Scorecards
• Tables
  • Tables for General Background
  • Tables for the Effects of Credit Scoring on the Availability and Affordability of Credit
  • Tables for the Data and Model
  • Tables for Findings on Loan Performance and Credit Availability and Affordability
  • Tables for Findings on Differential Effect
• Figures
• Footnotes

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