NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Credit Building or Credit Crumbling? A Credit Builder Loan's Effects on Consumer Behavior, Credit Scores and Their Predictive Power

Jeremy Burke, Julian Jamison, Dean Karlan, Kata Mihaly, Jonathan Zinman

NBER Working Paper No. 26110
Issued in July 2019
NBER Program(s):The Law and Economics Program, The Labor Studies Program, The Public Economics Program

There is little evidence on how the large market for credit score improvement products affects consumers or credit market efficiency. A randomized encouragement design on a standard credit builder loan (CBL) identifies null average effects on whether consumers have a credit score and the score itself, with important heterogeneity: those with loans outstanding at baseline fare worse, those without fare better. Selection, treatment effect, and prediction models indicate the CBL reveals valuable information to markets, inducing positive selection and making credit histories more precise, while keeping credit scores’ predictive power intact. With modest targeting changes, CBLs could work as intended.

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Document Object Identifier (DOI): 10.3386/w26110

 
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