Determining Good and Bad Credit Risks Among High- and Low-Income Families

Abstract

At present the many low-income families who cannot obtain credit from the large retailers must pay the extremely high credit charges of ghetto merchants-charges that typically are buried in the price of the goods purchased.' Several large retailers use credit scoring systems to identify the relatively good risks among their credit applicants. Insofar as these credit scoring systems are based on samples of current customers which underrepresent low-income families, the criteria derived may not be accurate predictors of the risk class of a low-income credit applicant. There is no strong a priori reason that the variables correlated with high-income goodrisk families should be correlated with low-income good-risk families, given possible social or cultural differences. This investigation was an attempt to discover criteria that can identify relatively good credit risks among low-income families.