Know Thyself: Free Credit Reports and The Retail Mortgage Market
53 Pages Posted: 9 Feb 2021 Last revised: 23 Feb 2021
Date Written: January 1, 2021
Under imprecise creditworthiness information, borrowers may make erroneous credit decisions. Credit reports—which record one’s creditworthiness—became free in the entire U.S. in 2005, while they already had been free in seven states. Exploiting this in a difference-in-differences setting, this paper shows that cheaper credit reports to consumers improved mortgage market outcomes. The applications, approvals and borrowing in high-creditworthy areas increased, and defaults and subprime population fraction decreased. Also, first-time homeowner proportion increased, and lenders’ financial performance improved. Additional findings, including increased interest rates, suggest a demand-driven improvement in applicant pool, as consumers receive precise creditworthiness signal from their reports.
Keywords: Credit Reports, Information Provision to Consumers, Household Finance, Mortgages, Regulation of Credit Information
JEL Classification: D12, D83, G21, G28, L51
Suggested Citation: Suggested Citation