Credit Scores and Inequality across the Life Cycle
Credit scores are a primary screening device for the allocation of credit, housing, and sometimes even employment. In the data, credit scores grow and fan out with age; at the same time, income and consumption inequality also increase with a cohort’s age. We postulate a simple model with hidden information to explore the joint determination of credit scores, income, and consumption over an individual’s lifetime which can replicate these empirical facts. We use the model to understand the role of technologies like big data or legal restrictions limiting information on certain adverse events like medical expenses intended to increase credit market access.
Published Versions
Forthcoming: Credit Scores and Inequality Across the Life Cycle, Satyajit Chatterjee, Dean Corbae, Kyle Dempsey, José-Víctor Ríos-Rull. in NBER Macroeconomics Annual 2025, volume 40, Leahy and Ramey. 2025