The introduction of credit scoring made it cheaper for banks to target loans better and within 20 years, the number of US Americans with a credit card rose from 40 to 70 percent. However, this also led to the rise of bankruptcies in the 1980s: “If new types of people, riskier people borrow, then they will also default at higher rates”.

In this context, Tertilt and her colleagues have also looked at the US ‘Fresh Start’ system where it is possible to declare bankruptcy and then start with a clean slate the next day. In countries such as the US, where there is less welfare state provision, this can act as an important safety net. On the downside it also leads to higher interest rates, which reduces the length of time people are able to spread their debt across.