Impatience Linked To Lower Credit Scores
December 16, 2011 by UPI - United Press International, Inc.
NEW YORK, Dec. 14 (UPI) — U.S. researchers say there may be a psychological reason why people default on their mortgages — that is, they may be more impatient.
Stephan Meier of the Columbia Business School and Charles Sprenger of Stanford University, while working at the Federal Reserve’s Center for Behavioral Economics and Decisionmaking in Boston, recruited 437 low-to-moderate income people at a community center in Boston that offered tax preparation help.
Each participant was given a questionnaire that featured choices between a smaller, immediate reward and a larger reward to be received in the future. The participants agreed to let researchers access their FICO credit scores.
The study, scheduled to be published in the Psychological Science, found participants who were the most willing to delay rewards and exhibited more patience had FICO scores that were approximately 30 points higher than those of participants who were least willing to delay.
The study found the impatient participants fell below the subprime lending cutoff of 620 — a level at which individuals generally face substantially elevated borrowing rates.
“Conceptually, it does make sense that how people discount the future, i.e. how impatient they are, affects their decision to default on their loans,” Meier says.
However, defaulting on a loan isn’t always a deliberate choice. People may default for a variety of reasons, such as when they lose their job, the study authors added.