This study analyzes consumers' knowledge of their own credit situation and tests whether a lack of knowledge affects financial outcomes. The unique dataset from survey and credit report data includes self-estimates of credit scores and actual scores from a low-to-moderate income sample. We argue and show empirically that many respondents don't know their credit score and generally underestimate their creditworthiness. Furthermore, our evidence suggests that this biased self-assessment may explain differences in perceived credit constraints and credit contracts, specifically credit card interest rates. Our research suggests that an important aspect of financial literacy is self-assessment, and that it is important to encourage consumers to regularly check their credit reports and scores so as to better understand their actual creditworthiness.
Meier, Stephan, Ben Levinger, and Marques Benton. "The Cost of Not Knowing the Score: Self-Estimated Credit Scores and Financial Outcomes." Journal of Family and Economic Issues 32, no. 4 (2014): 556-585.
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