Giving Credit Where Credit is Due: The Psychology of Credit Ratings

The purpose of this study is to examine the effect of personality on credit ratings, measured in terms of credit scores from actual credit reports. Personality is measured in terms of an individual's locus-of-control, which is the extent to which individuals attribute important outcomes to external forces outside of their control. Using survey data from a large, national sample of consumers, an individual's credit score is modeled as a function of financial knowledge and locus-of-control, in addition to demographic characteristics and situational factors. Findings suggest that consumers with higher levels of financial knowledge and consumers with an internal locus-of-control have higher credit scores than similarly situated consumers with low credit scores, even after controlling for income, education, and the incidence of negative external life events. In addition, the extent to which knowledge affects credit scores depends on whether an individual has an external vs. internal locus-of-control.