A new study finds young people with student loan debt are significantly more likely to pay their bills on time after viewing their credit scores online. They also tend to have a more realistic picture of their financial standing and are less likely to overestimate their scores.
Ignoring your credit score could have costly repercussions, new research shows.
Checking your credit score not only helps you learn what kinds of loans you’re most likely to qualify for; research suggests that it may also inspire you to take better care of your credit health.
A working paper published in July by the National Bureau of Economic Research found young people with student loan debt were significantly more likely to pay their bills on time after viewing their credit scores online. They also tended to have a more realistic picture of their financial standing and were less likely to overestimate their scores.
In addition, the study found young people who were periodically reminded to view their credit scores were not only more likely to check their scores in the first place. They also had persistently higher scores overall.
“Findings from our field experiment indicate that viewing one’s FICO score influences financial behaviors,” the study authors wrote in an earlier version of the report.
For example, study participants who were sent reminders to view their scores were more likely to stay current on their bills. They were also more likely to own at least one credit card – which experts often recommend to borrowers who want to establish a positive credit history.
For the study, the authors sent regular reminders to participants letting them know they could access their free credit scores by logging into their accounts with the student loan lender Sallie Mae. Like many financial companies, Sallie Mae provides free FICO scores to customers.
Not everyone who received the reminders acted on them or even opened their emails. However, among those who did, the reminders and free scores appeared to have significantly improved their financial behavior – especially if preventable mistakes were damaging their scores, rather than deeper financial problems or events outside their control.
Thinking about your score could motivate you to improve it
Researchers aren’t sure why viewing your credit score makes you more likely to take care of it. However, learning more about your creditworthiness and where your finances stand could motivate you to make better choices down the line.
If you previously overestimated your FICO score, you may be more likely to take steps to improve it once you learn how low it really is and how it could hurt your ability to qualify for what you want, such as a mortgage, low rate credit card or auto loan.
Similarly, viewing your FICO score may also motivate you to set a personal goal, which research shows can also be influential. For example, if your credit score is in the 600s, you may feel more motivated to improve your financial behavior so you can nudge it into the 700s.
In addition, previous research has found personalized messages that remind you of your goals or note how you’re falling short can also help motivate you to change course.
One study highlighted in the report, for example, found people were more likely to change their credit behavior when they were warned about their low credit scores. Another study found that reminding people about their savings goals also tended to be more effective.
“This is consistent with prior research showing that individuals are responsive to negative feedback about their financial behaviors,” the researchers concluded.
See related: My quest for a perfect credit score
Don’t wait until you’re applying for a loan to check your credit score. Instead, you’re better off regularly viewing it so you can keep tabs on how well your credit is doing.
That way, you’re less likely to overestimate your credit score and are instead more likely to take positive steps to improve your long-term credit health.
You may also want to take a cue from researchers who sent regular reminders to participants: To help you stay on track, set up periodic email reminders for yourself so you’ll remember to check your score more often.