Know Thyself: Free Credit Reports and The Retail Mortgage Market

53 Pages Posted: 9 Feb 2021 Last revised: 23 Feb 2021

See all articles by Amit Kumar

Amit Kumar

The Hong Kong University of Science and Technology

Date Written: January 1, 2021

Abstract

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

Kumar, Amit, Know Thyself: Free Credit Reports and The Retail Mortgage Market (January 1, 2021). Available at SSRN: https://ssrn.com/abstract=3732853 or http://dx.doi.org/10.2139/ssrn.3732853

Amit Kumar (Contact Author)

The Hong Kong University of Science and Technology ( email )

Room No 5067. LSK Business Building. Hong Kong Uni
Hong Kong SAR, 000000
Hong Kong

HOME PAGE: http://www.amitkmr.com

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