The Equilibrium Effect of Information in Consumer Credit Markets: Public Records and Credit

Abstract

In 2017, non-bankruptcy public records were purged from U.S. consumer credit reports. We use the removal of this predictive information to estimate the individual and equilibrium effects of information on credit. For consumers who lose a public record, the likelihood of having a credit card and an auto loan increases by 1.2 and 0.5 percentage points after a year, respectively. Credit card limits increase by 6 percent, but so does credit card debt, evidence of a strong endogenous response to credit limit changes. Among consumers without a prior public record, there was equilibrium credit redistribution from consumers in submarkets with higher public record incidence to consumers in submarkets with lower incidence, in accordance with the illustrative model we develop. We find no significant aggregate change in credit. The net credit effect was positive for low-score consumers and for consumers living in areas with a high share of African Americans.