Does Credit Scoring Produce a Disparate Impact?

Real Estate Economics, Forthcoming

Posted: 22 Feb 2012

See all articles by Robert B. Avery

Robert B. Avery

Board of Governors of the Federal Reserve System

Glenn B. Canner

Board of Governors of the Federal Reserve System

Kenneth P. Brevoort

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: February 21, 2012

Abstract

The widespread use of credit scoring in the underwriting and pricing of mortgage and consumer credit has raised concerns that the use of these scores may unfairly disadvantage minority populations. A specific concern has been that the independent variables that comprise these models may have a disparate impact on these demographic groups. By “disparate impact” we mean that a variable’s predictive power might arise not from its ability to predict future performance within any demographic group, but rather from acting as a surrogate for group membership. Using a unique source of data that combines a nationally representative sample of credit bureau records with demographic information from the Social Security Administration and a demographic information company, we examine the extent to which credit history scores may have such a disparate impact. Our examination yields no evidence of disparate impact by race (or ethnicity) or gender. However, we do find evidence of some limited disparate impact by age, in which the use of variables related to an individual’s length of credit history appear to lower the credit scores of older individuals and increase them for the young.

Keywords: credit scoring, disparate impact, discrimination

Suggested Citation

Avery, Robert B. and Canner, Glenn B. and Brevoort, Kenneth, Does Credit Scoring Produce a Disparate Impact? (February 21, 2012). Real Estate Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2008938

Robert B. Avery (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Glenn B. Canner

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Kenneth Brevoort

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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