NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports

Will Dobbie, Paul Goldsmith-Pinkham, Neale Mahoney, Jae Song

NBER Working Paper No. 22711
Issued in October 2016
NBER Program(s):CF, LS, PE

Credit reports are used in nearly all consumer lending decisions and, increasingly, in hiring decisions in the labor market, but the impact of a bad credit report is largely unknown. We study the effects of credit reports on financial and labor market outcomes using a difference-in-differences research design that compares changes in outcomes over time for Chapter 13 filers, whose personal bankruptcy flags are removed from credit reports after 7 years, to changes for Chapter 7 filers, whose personal bankruptcy flags are removed from credit reports after 10 years. Using credit bureau data, we show that the removal of a Chapter 13 bankruptcy flag leads to a large increase in credit scores, and an economically significant increase in credit card balances and mortgage borrowing. We study labor market effects using administrative tax records linked to personal bankruptcy records. In sharp contrast to the credit market effects, we estimate a precise zero effect of flag removal on employment and earnings outcomes. We conclude that credit reports are important for credit market outcomes, where they are the primary source of information used to screen applicants, but are of limited consequence for labor market outcomes, where employers rely on a much broader set of screening mechanisms.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22711

Users who downloaded this paper also downloaded* these:
Falato and Scharfstein w22689 The Stock Market and Bank Risk-Taking
Krishnamurthy, Bai, and Weymuller w22729 Measuring Liquidity Mismatch in the Banking Sector
Glaeser, Huang, Ma, and Shleifer w22789 A Real Estate Boom with Chinese Characteristics
Herkenhoff, Phillips, and Cohen-Cole w22846 The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship
Bederson, Jin, Leslie, Quinn, and Zou w22710 Incomplete Disclosure: Evidence of Signaling and Countersignaling
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us