Credit Access in the United States

We construct new population-level linked administrative data to study households’ access to credit in the United States. By age 25, Black adults, those who grew up in low-income families, and those raised in the Southeast or Appalachia already have significantly lower credit scores than other groups, and these differences persist throughout adulthood. These gaps translate into smaller credit balances, more credit inquiries, higher credit utilization, and greater reliance on high-cost alternative financial services. Evaluating two definitions of algorithmic bias yields opposing results. Scores are miscalibrated against traditionally advantaged groups: conditional on a score, Black and low-parental-income individuals fall delinquent more often. Yet scores are unbalanced against traditionally disadvantaged groups: among borrowers with no future delinquency, Black and low-parental-income individuals receive lower scores. Eliminating both biases and reducing gaps in credit access requires reducing systematic differences in delinquencies, which emerge in one’s twenties through missed payments on credit cards, student loans, and other bills. Comprehensive measures of individuals’ income profiles and observed wealth explain only a small portion of these repayment gaps. In contrast, most geographic variation in repayment reflects the causal effect of childhood exposure to place. Counties that promote upward mobility also promote repayment and expand credit access, suggesting that common place-level factors may drive behaviors in both credit and labor markets. We discuss suggestive evidence for several mechanisms of our results, including the role of social and cultural capital. We conclude that gaps in credit access by race, class, and hometown have roots in childhood environments.