If you have a low credit score it may have something to do with your ability to wait, according to a new study published in the journal Psychological Science.
Researchers found people with poor credit were more impatient and more likely to choose immediate rewards rather than wait for a larger reward in the future.
Study authors Stephan Meier, of the Columbia University Business School and Charles Sprenger, of Stanford University Department of Economics, recruited 437 low-to-moderate income people at a Boston community center offering tax preparation help.
Each person was given a questionnaire that featured choices between a smaller, immediate reward and a larger reward they would receive in the future.
The participants also agreed to let the researchers access their FICO credit scores.
They found that the length of time to wait for a reward correlated with a persons FICO score.
Participants who were the more willing to delay rewards had FICO scores that were approximately 30 points higher than those of participants who were the less willing to delay.
Also, the impatient participants fell below the subprime lending cutoff of 620. At this score, 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 said. “Individuals accumulate debt and then have to decide whether to repay the money or use the money for something else.”
Meier did acknowledge that defaulting on a loan isn’t always a deliberate choice and could happen for a variety of reasons, but he said he has found “strategic defaulting” going on, where someone makes a cost-benefits analysis and chooses to have more money now and deal with the consequences later.