“Impatient people have lower credit scores”

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Washington: Impatient people default on their mortgages, because they are more likely to choose immediate gain over a larger reward later, researchers say.

“Most often, the reasons economists put forward are, maybe there was not enough screening for mortgage applicants, or securitization, or other institutional reasons,” said economist Stephan Meier from the Columbia University.

“That’s definitely important, but in the end humans make those repayment decisions. So, there must be more psychological factors that explain how people make those decisions to default or not,” said Meier, the journal Psychological Science reported.

During tax season, Meier and his co-author Charles Sprenger from Stanford University recruited 437 low-to-moderate income people at a community centre in Boston that was offering tax preparation help, according to a university statement.

Each person was given a questionnaire in which they made choices between a smaller, immediate reward and a larger reward later. The test was conducted to see if people are willing to delay gratification.

Impatient people had lower credit scores. A low credit score can indicate some problems with credit in the past, like failing to pay bills or defaulting on a mortgage.

“Conceptually, it does make sense that how people discount the future, that is how impatient they are affects their decision to default on their loans,” Meier said.

He acknowledges that defaulting on a loan isn’t always a deliberate choice. People may default because they lose their job.