Credit Market Consequences of Credit Flag Removals

Posted: 26 Jun 2017

See all articles by Will Dobbie

Will Dobbie

Princeton University

Benjamin J. Keys

The Wharton School - University of Pennsylvania, Real Estate Department

Neale Mahoney

University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: June 5, 2017

Abstract

This paper estimates the impact of a bad credit report on financial outcomes by exploiting exogenous variation in the timing of credit flag removals. Credit flags are removed from credit reports after seven years, generating an immediate change in the information available to the credit market. We study the effects of credit flag removal using a sample of 246,000 individuals whose flags were removed between 2004 and 2013. We find that the removal of bankruptcy and charge-off flags result in increased credit scores. These increased scores are associated with increases in the number of credit card lines, credit card limits, and credit card balances. Results from a second identification strategy exploiting a sudden change in how credit flags are coded yields similar results. The findings support the view that credit reporting decisions have direct credit market consequences for consumers.

Keywords: Credit flags, credit reports

Suggested Citation

Dobbie, Will and Keys, Benjamin J. and Mahoney, Neale, Credit Market Consequences of Credit Flag Removals (June 5, 2017). Available at SSRN: https://ssrn.com/abstract=2991711

Will Dobbie

Princeton University ( email )

Benjamin J. Keys

The Wharton School - University of Pennsylvania, Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

Neale Mahoney (Contact Author)

University of Chicago Booth School of Business ( email )

5807 South Woodlawn Ave
Chicago, IL 60637
United States
773.702.9278 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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