Critics have questioned the accuracy and fairness of credit-score models, charging that in some cases they are inherently biased against minority groups such as blacks and Hispanics.
After a research effort over several years that focused on three credit-scoring models -- including one created by Federal Reserve staff economists -- the central bank concluded that:
? Credit-score statistical models are not biased against any demographic group and are highly predictive of future payment performance. Lower scores correlate strongly with future delinquencies; higher scores are associated with good payment performance.
? Blacks and Hispanics, on average, "have lower credit scores than non-Hispanic whites and Asians."
? Younger individuals 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.
? The payment performances of some demographic groups differ from what their numerical scores might suggest. For example, according to the Fed, "blacks, single individuals, individuals residing in lower-income or predominantly minority census tracts show consistently higher incidences of bad performance than would be predicted" by their credit scores. On the other hand, "Asians, married individuals, foreign-born (particularly, recent immigrants), and those residing in higher-income census tracts consistently perform better than predicted" by their credit scores.
Blogging on bureaucracy, organizations, USDA, agriculture programs, American history, the food movement, and other interests. Often contrarian, usually optimistic, sometimes didactic, occasionally funny, rarely wrong, always a nitpicker.
Saturday, September 01, 2007
Bias In FICO Scores?
The Post reports that the Federal Reserve has completed a study of possible bias in FICO scores (the most widely used score affecting eligibility for credit):
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