In a report to Congress that is certain to generate controversy, the Federal Reserve Board says that credit scores vary substantially among racial and ethnic groups, but have made credit more available for major consumer purchases such as buying a home.
Nation's Housing
The Fed's study, encompassing credit bureau records and demographic data from a national statistical sample of 301,536 individuals, was mandated by Congress in 2003. Credit scores are now heavily used not only in home mortgage underwriting and pricing, but in credit cards, auto loans, employment and rental application screening, and the insurance industry.
Critics have questioned the accuracy and fairness of credit-score models, saying that in some cases they are inherently biased against minority groups such as African Americans and Latinos.
After a huge research effort over several years that focused on three credit-scoring models -- including one created by Federal Reserve staff economists -- the agency concluded that:
-- Credit-score statistical factors and models are not biased against any particular demographic group, but accurately predict future payment performance. Lower scores correlate strongly with future delinquencies; higher scores are associated with good payment performance.
-- African Americans and Latinos, on average, "have lower credit scores than non-Hispanic whites and Asians."
-- Younger people of all demographic groups have lower credit scores on average than older people, in part because credit-scoring models focus on payment histories and length of credit accounts. Younger consumers generally have fewer accounts and shorter payment histories.
Read more: sfgate.com |
