Working Paper: NBER ID: w21203
Abstract: We use individual level credit bureau data to document which individuals saw the biggest rise in household debt from 2000 to 2007 and the biggest rise in defaults from 2007 to 2010. Growth in household debt from 2000 to 2007 was substantially larger for individuals with the lowest initial credit scores. However, initial debt levels were lower for individuals in the lowest 20% of the initial credit score distribution. As a result, the contribution to the total dollar rise in household debt was strongest among individuals in the 20th to 60th percentile of the initial credit score distribution. Consistent with the importance of home-equity based borrowing, the increase in debt is especially large among individuals in the lowest 60% of the credit score distribution living in high house price growth zip codes. In contrast, the borrowing of individuals in the top 20% of the credit score distribution is completely unresponsive to higher house price growth. In terms of defaults, the evidence is unambiguous: both default rates and the share of total delinquent debt is largest among individuals with low initial credit scores. The bottom 40% of the credit score distribution is responsible for 73% of the total amount of delinquent debt in 2007, and 68% of the total in 2008. Individuals in the top 40% of the initial credit score distribution never make up more than 15% of total delinquencies, even in 2009 at the height of the default crisis.
Keywords: Household Debt; Defaults; Credit Bureau Data
JEL Codes: E0; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| low initial credit scores (G51) | largest growth in household debt (G51) |
| highest credit score quintile (G51) | lower growth in household debt (G51) |
| 20th to 60th percentile of initial credit score distribution (C46) | contribution to total dollar rise in household debt (G51) |
| lowest 40% of credit score distribution (C46) | higher default rates (G33) |
| bottom 20% of credit score distribution (G51) | responsible for 40% of dollars in delinquency in 2007 (G51) |