Know your credit!

Posted: June 5, 2008 in Economy

Here’s an interesting study I came across that examines how our attitudes can affect our finances. Published in the Journal of Consumer Affairs this summer, the study suggests that many of us tend to overestimate our creditworthiness and that when we do, we take less care of our finances.

Author Vanessa Gail Perry, assistant professor at the George Washington University School of Business, examined the Freddie Mac Consumer Credit Survey of about 23,000 people. She found that 32 percent of respondents overestimated their credit ratings, or credit scores, which lenders use to determine how risky a consumer is. Only 4 percent underestimated their credit ratings.

Those who overestimated their credit ratings were less knowledgeable about their finances and were more likely to have had difficult experiences in the past. They were less likely to budget, save, or invest regularly. And they tended to have lower incomes, less formal education and didn’t own their homes.

Perry also pointed out that they were more likely to be African American or Hispanic and female, possibly because minorities have less experience in financial markets, she said.

Why is this so important? (more…)

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