Do Impatient People Have Lower Credit Scores?

A new study suggests that if you can wait longer for rewards, you’re more likely to have a higher credit score.

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Impatience, it turns out, can be costly. New research suggests that people who opt for smaller rewards today over bigger rewards later also tend to have lower credit scores. In the study, co-authored by Columbia Business School professor Stephan Meier, the most impatient people had credit scores below 620, which means they pay more for loans.

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Meier and his co-authors offered 437 low- to moderate-income participants bigger cash rewards if they were willing to receive the money later. They correlated the participants’ willingness to delay their cash rewards with their FICO score, a commonly used credit score. The participants who were most willing to wait for their cash rewards, had, on average, FICO scores that were 30 points higher than those who were the least patient. People with lower credit scores often have a harder time getting loans, and they pay more for the loans they do get.

The findings bring to mind another recent experiment, published in the June 2011 edition of the Journal of Consumer Research, which found that consumers make money choices based on how connected they feel to their future identities. In that experiment, the researchers asked graduating seniors at a Midwest university to read one of two statements: The first emphasized how big of a deal it was to graduate and how much they would change afterward. The second one did just the reverse, emphasizing that one’s core identity changes very little throughout the course of one’s life. Then participants were told they could receive a gift card right away, or a bigger gift card later.

The results were clear: Students who read the statement emphasizing continuity in one’s identity were more likely to elect to receive the larger gift card (worth up to $240) later; those who read the statement that focused on change were more likely to opt for the lower-valued gift card (worth $120) immediately.

That study harks back to an earlier, classic experiment, most famous for its use of marshmallows. Back in the 1970s, Stanford researchers offered children a choice: One marshmallow now, or two later. The children that opted for two treats later were more likely to be successful in life, suggesting that the ability to defer gratification is a valuable trait.

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The recurring theme in all these studies is delayed gratification: Are you the kind of person who is willing to deny yourself some pleasure today in order to reap greater rewards later? If the answer is yes, you probably have an easier time saving money and, it now appears, maintaining a healthy credit score.

If patience doesn’t come naturally to you, here’s a trick. The authors of the Journal of Consumer Research study recommend meditating on your future self. As they put it, “[S]imply…maintaining a sense of connectedness to the future self may help resolve these dilemmas, yielding more farsighted choices. Rather than employing guilt or complex incentive schemes pitting the interests of future and current selves against each other, simply fostering the sense that what matters most in defining us persists over time may represent a powerful means to help us persist in achieving important goals.”

That kind of future-focused thinking might be especially important during major life events, such as college graduation, marriage, and divorce, when people are particularly vulnerable to feeling disconnected to their future selves—and also at risk for running up debt and hurting their credit scores.

Twitter: @alphaconsumer