Are you impatient? What is your credit score?

There have been some studies recently that researched behavior and credit scores.  Here is another one from the Federal Reserve’s Center for Behavioral Economics and Decision-Making in Boston, entitled “Time Discounting Predicts Creditworthiness”.  It was co-authored by Stephan Meier, an associate professor at Columbia University and Charles Sprenger, an associate professor of economics at Stanford University.

Research study design

The researchers asked individuals, who were at a community center getting free tax preparation assistance, to participate in the study and 437 agreed. They were from low-to-moderate income. They let the researchers access their FICO credit scores, tax income, education and other information that enabled the researchers to control for those factors.

They were given a questionnaire in which they made choices among size of reward and time to receive the reward.  They would receive a larger reward if they delayed receipt of it or delayed gratification. The delay varied depending upon the reward.

“We told them, ’look, you can get a little bit less money now or a little bit more money in a month,’” says Stephan Meir. “We would start at, ‘You can have $49 now, $50 in a month.’ They would take the $49 now. ‘So OK, what about $47 now, $50 in a month?’ Then $40, so on and so on until we got to $20 now or $50 in a month. Then most people said, ‘No, for 30 extra dollars, I’ll wait a month.’”

Correlation between score and impatience

The results found a correlation between how impatient people are and their credit decisions.

Those with the lowest scores were the most impatient and did not want to delay gratification. The less impatient they were, the lower their credit score was. This held true even when income, education and a few other variables were controlled. Participants with more patience had credit scores of approximately 30 points higher than those who were impatient.  The impatient participants had scores below 620, which is considered subprime or very risky.

Was this research somewhat biased?  The responders were in the low to moderate income range and were getting free income tax service. Was their income due to unemployment, underemployed, or something else?  Based on this research, impatient individuals tend to have lower credit scores.  If you tend to be impatient, you may try to be more patient and resist making decisions or purchases on an impulse, which could help your credit score.

Credit Damage Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Credit Report, Credit Score, Financial, Government, Money & Identity

This post was written by John Ulzheimer