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Private Credit Bureaus and Positive Information Sharing: Effects on credit cost?

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Listed:
  • José Renato Haas Ornelas
  • Raquel de Freitas Oliveira
  • Ricardo Schechtman

Abstract

This study exploits a legal change in Brazil to identify the extent to which new information generated by credit bureaus translates into different loan interest rates. The legal change enabled private credit bureaus (PCBs) to build new credit scores for approximately 100 million individuals, based on a broader scope of positive information, such as loan flow and repayment patterns. We find an average reduction of 3.7% in the interest rates of personal loans to borrowers whose new scores became available for sale by the PCBs. The effects are stronger in the cases where the new score is much higher than the old score, reaching an average reduction of 8.7%. We find stronger results for new clients and for private banks. The mechanisms behind our results include both the reassessment of borrower credit risk and higher competition among lenders coming from the dissemination of new positive information. We also provide empirical evidence consistent with information sharing reducing the ability of lenders to informationally lock-in their borrowers.

Suggested Citation

  • José Renato Haas Ornelas & Raquel de Freitas Oliveira & Ricardo Schechtman, 2025. "Private Credit Bureaus and Positive Information Sharing: Effects on credit cost?," Working Papers Series 624, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:624
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    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/WP624v3.pdf
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    References listed on IDEAS

    as
    1. Andrew Hertzberg & Jose Maria Liberti & Daniel Paravisini, 2010. "Information and Incentives Inside the Firm: Evidence from Loan Officer Rotation," Journal of Finance, American Finance Association, vol. 65(3), pages 795-828, June.
    2. Sutherland, Andrew, 2018. "Does credit reporting lead to a decline in relationship lending? Evidence from information sharing technology," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 123-141.
    3. Vasso Ioannidou & Steven Ongena, 2010. "“Time for a Change”: Loan Conditions and Bank Behavior when Firms Switch Banks," Journal of Finance, American Finance Association, vol. 65(5), pages 1847-1877, October.
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