Authors: Andrei Simonov (Michigan State)
Title: FICO Doctors
Abstract: We show that borrowers deliberately manipulate their credit score (taking loans and repaying them, increasing credit card limits and reducing credit card utilizations) in order to move into next credit score bin for better credit availability and loan terms. Manipulating borrowers are more likely to purchase houses after their credit scores changed to qualify them for the next bin. However, the credit accounts of those individuals are more likely to become delinquent within the next four years after home purchases. The effect is front-loaded for subprime and near prime borrowers and takes three to four years for prime borrowers. The manipulating behavior is not limited to 2004-2007 housing boom and was not curtailed by post-bust reforms.