Credit Scoring and the Availability of Small Business Credit in Low- and Moderate-Income Areas

This paper estimates that credit scoring is associated with about a $3,900 increase in small business lending per sample banking organization, per low- and moderate-income (LMI) area served, and this effect is roughly equivalent to that estimated for higher-income areas. For our sample, this corresponds to a $536 million increase in small business credit in LMI areas in 1997 than otherwise would have been the case. This effect appears to be driven by increased out-of-market lending by banking organizations, as in-market lending generally declines. Overall, it does not appear that credit scoring has a disparate impact on LMI areas