Thriftiness Isn’t Enough: Dynamics of Consumer Credit History Scores Among Low- and Moderate-Income Homeowners

Publication Date

August 2009

Author(s)

Jonathan Spader, Roberto G. Quercia

Client/Funder

Ford Foundation

Abstract

Despite the application of credit scoring to an expanding range of activities, very little is known about the nature of credit scoring or its implications for households’ access to economic opportunity. In particular, the interrelationships between credit scores, access to credit and wealth remain largely unexamined.

This article first presents a conceptual model of the mechanisms through which credit scores interact with individuals’ economic characteristics. Empirical analysis then follows the credit scores of a sample of low- and moderate-income homeowners through the first years after home purchase, offering the first available evidence with respect to the determinants of generic credit history scores.

The analysis first documents substantial differences in credit score outcomes across demographic groups. It then examines the relative roles of trigger events and observed payment history characteristics in creating these patterns.

While thriftiness is found to have an increasingly positive impact on individuals’ credit scores, this effect is overwhelmed by the influence of the individual’s economic context.