Marion Fourcade Kieran Healy University of California-Berkeley
This project investigates how credit markets measure and classify people and households. Over the past thirty years, access to credit has expanded greatly in the United States. Middle-class families borrow more, and lower income and minority families have become incorporated into the banking system. At the same time, the variety of available credit products has increased, the tools used to measure and assess creditworthiness have become more sophisticated, and these tools are increasingly used in new ways that go well beyond their original purposes. It is important to understand how these tools and their application affect people's chances for economic prosperity, social mobility, and successful incorporation into American society. To study how credit markets classify individuals, researchers need data that combines demographic information with people's credit market behavior. This project will make use of an original dataset with these unique features on a scale that goes beyond previous research. Using detailed anonymous data on individual credit histories in conjunction with Census data, the project will investigate how scoring techniques in the credit market are related to demographic patterns and processes in markets. It will help us better understand the relationship between credit scoring methods, adverse credit events like debt default, bankruptcy, and foreclosure, and other socioeconomic factors like employment and household wealth. It will also help explain why demographic inequality in credit classification persists even though credit reporting agencies cannot collect or use demographic data about individuals.
Credit scores are meant to measure the behavior of individuals as they spend their money. Earlier research suggests that, in addition to people?s preferences and wants, this behavior is shaped by various environmental factors such as the local supply of education and employment, the density of alternative financial services, the financial resources available to people through their networks, and the credit market behavior of one's peers. For example, if there is a wave of foreclosures in one's neighborhood, that may decrease one's own home equity in a way that is independent of one's individual financial choices. This may in turn affect one's ability to refinance one's mortgage or make other financial decisions. The project will investigate the existence and scope of the contextual forces that affect individual credit and financial security, and contribute new results to current social-scientific and policy debates about the role of consumer credit in the economy. The project will also explore other social features of credit markets and credit scoring. In particular, there is an ongoing debate about whether the process of monitoring credit and assigning credit scores simply reflects events in the market or itself exerts some independent effect in that market. The project?s rich data on credit behavior over long periods of time will allow the investigation of this question in more detail than has been possible before now.