Self-Fulfilling Credit Scores / Victor Duarte, Julia Fonseca.

Format:

Book

Author/Creator:

Duarte, Victor.

Contributor:

Fonseca, Julia.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w35508.

NBER working paper series no. w35508

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2026.

Summary:

A decline in credit scores can worsen the borrower's financial position, making default a self-fulfilling prophecy. We estimate the causal effect of credit scores on default using a rule that counts multiple inquiries within 14 days as one, moving scores without changing credit reports. Regression discontinuity estimates around the 14-day cut-off show that an additional counted inquiry lowers scores by five points on average. Default does not respond among consumers with clean records, but rises by 3.2 percentage points over two years among those with prior derogatories. For these consumers, at least 13 percent of the relationship between scores and default is self-fulfilling. We show that scorers would want to limit self-fulfilling defaults if their objective is forecast accuracy, but not if it is separating defaulters from non-defaulters, because that objective rewards the score for the defaults it causes.

Notes:

July 2026.

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