Credit record overconfidence and alternative financial service use
ISSN: 1940-5979
Article publication date: 1 March 2022
Issue publication date: 29 June 2023
Abstract
Purpose
The purpose of this paper is to study the effect of credit record overconfidence on the use of alternative financial services (AFSs).
Design/methodology/approach
Using data from the 2018 National Financial Capability Study (NFCS), the authors estimate logistic regressions on the use of at least one AFS by adding a credit record confidence variable that captures deviations between self-assessments of credit record management and the number of reported behaviors that would negatively affect aspects of a Fair Isaac Corporation (FICO) score.
Findings
The authors find that respondents with credit record overconfidence have over two times higher odds (123.9%) of using AFS than the odds of respondents with financial knowledge overconfidence (46.8%), relative to their reference categories. When compared directly, those with only credit record overconfidence have 32.6% higher odds of using AFS than those with only financial knowledge overconfidence.
Practical implications
The results provide implications for education programs, not only for vulnerable groups at higher risk for AFS use but also for those with cognitive biases, such as credit record overconfidence. Potential solutions include personal financial education that includes debiasing and behavioral techniques for overconfidence.
Originality/value
This paper studies, for the first time, the effect of deviations between actual and perceived credit record management on AFS use.
Keywords
Citation
Wann, C.R., Brockman, B.K. and Brockman, C.M. (2023), "Credit record overconfidence and alternative financial service use", Review of Behavioral Finance, Vol. 15 No. 4, pp. 488-510. https://doi.org/10.1108/RBF-09-2021-0171
Publisher
:Emerald Publishing Limited
Copyright © 2022, Emerald Publishing Limited