Different racial and ethnic groups have substantially different credit scores, on average, despite indications that credit-score models aren't biased against any particular demographic groups and even as credit has become more widely available, concluded a study conducted by the Federal Reserve.
The Fed study, Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit, researched credit-bureau records and demographic data from more than 300,000 individuals.
The study, released in August, concluded that credit-history scores are predictive of credit risk for the population as a whole and for all major demographic groups. The higher/better the credit score, the lower the observed incidence of default.
However, the study noted, credit scores differed among blacks, Hispanics, unmarried individuals and those younger than age 30, and individuals residing in low-income or predominantly minority census tracts have lower credit scores than other groups defined by race or ethnicity, marital status, age or location.
"Group differences in credit scores are narrowed, but not always eliminated, when differences in personal demographic characteristics, in residential location or in a census-tract-based estimate of an individual's income are taken into account," said the Fed study.
The study found evidence to suggest that the credit characteristics included in credit-history scoring models do not serve as substitutes or proxies for race, ethnicity or sex. The Fed's analysis did suggest, however, that certain credit characteristics serve, in part, as limited proxies for age. …