FICO Scores and Financial Behavior

Transcription

1 FICO Scores and Financial Behavior CFED Assets Learning Conference Washington, DC September 28, 2016 Rourke O Brien University of Wisconsin-Madison La Follette School of Public Affairs Abigail Sussman University of Chicago Booth School of Business Tatiana Homonoff New York University Wagner School of Public Service

2 Motivation Movement in recent years to put credit scores into the hands of consumers. FICO, Credit Bureaus, Third Party Providers (e.g., Credit Karma) FICO Open Access Initiative already provided more than 100 million free scores to consumers. Implicit assumption that empowering consumers with scores will improve their financial behavior. But to date no evidence of (or even direct test for) the causal effect of viewing one s credit score on financial attitudes and behaviors. 2

3 Key Research Question Does viewing one s FICO score influence financial behavior/financial outcomes? 3

4 Existing Research Evidence of effect of financial education and financial knowledge interventions is mixed. Existing research suggests that those who regularly view their FICO/Credit Scores have better finances than those who do not regularly view their FICO/Credit Scores Problem of selection: those who view regularly are likely very different from those who don t; Difficult to disentangle real effect of viewing score on behavior/outcomes. 4

5 Research Design: Experiment Partnered with FICO and large financial institution in the process of rolling out FICO Open Access program. Could not randomize who was able to view FICO score online; but could randomize who was nudged to view their score with an reminder. 600,000 consumers randomly assigned to either a Control or Treatment condition Treatment: Received each quarter informing them that their FICO score has been updated; includes a link to login to FI site to view score. Control: Received no s about FICO score 5

6 Research Design: Experiment First sent June 2015; Still in field (latest data June 2016) Credit report level data for all consumers before, during, after study period. Exploit variation in FICO page view rates between treatment and control group to get causal effect of viewing FICO score on change in financial outcomes during time period. 6

7 Results (so far!) We find small but statistically significant effects of viewing FICO score on a range of financial outcomes, including: Reduction in account delinquencies/past due on credit report Increase in number of trade accounts Increase in credit usage (% with any credit balance) Increase in FICO score itself More to come! Additional outcomes Examine variation by subgroups: age, sex, income, indebtedness 7

8 Implications Viewing FICO/Credit Scores appears to have a small but real effect on financial behavior. Some behaviors certainly good e.g., reduced delinquencies Others more complicated e.g., higher credit usage Important: Can t disentangle effect of score itself versus the two reason codes presented in conjunction with the score. Evidence that low-touch, scalable interventions can move the needle on financial behavior. Need to know WHO is most influenced by viewing score. Need to see determine what contextualizing information is important to ensure FICO/Credit Score information leads to (positive!) behavior change. 8

9 Interested in your thoughts What additional outcomes should we explore? What types of financial outcomes do we think might be impacted by viewing one s credit score (and can change in a matter of months)? How should we think about sub-group analysis, that is, are there some groups of consumers that you think might be more or less affected by viewing their score? 9

10 Thanks! FICO Scores and Financial Behavior CFED Assets Learning Conference Washington, DC September 28, 2016 Rourke O Brien University of Wisconsin-Madison La Follette School of Public Affairs Abigail Sussman University of Chicago Booth School of Business Tatiana Homonoff New York University Wagner School of Public Service