Does Checking Your Credit Score Help or Hurt?

January is filled with resolutions to start the new year right, from exercise and diet to financial health. One area that may often be overlooked is checking your credit score, and according to new research, there may be a reason for that.

A new study sought to identify root causes for information avoidance, particularly consumer finance matters. It found that when individuals receive damaging information about their financial health, they are less likely to want additional information.

The study is published in the latest issue of the INFORMS journal Marketing Science. It is authored by Jessica Fong of the University of Michigan and Megan Hunter of Boston College. The researchers looked at a consumer financial tracking website where consumers receive free credit reports when they log on each month. The study found that 38% of the users did not return after receiving their first credit report.

‘We wanted to find out why those users did not return,’ says Fong. ‘So, we decided to focus our research and answer two questions: What drives an individual’s demand for information? And, how does information affect outcomes? We found that the larger the user’s perceived drop in credit score, the less likely they were to view their updated credit report in the future. Those who received information on a declining credit score represented most of those who did not recheck their credit score.’

The authors used an A/B analysis of emails sent to individuals about their credit scores to answer their second research question on the impact of information on outcomes. ‘On average, users who had declining credit scores before checking their credit report experienced a 23-point decrease in credit score after viewing their updated report, whereas users who had non-declining credit scores experienced a nine-point increase in their credit score after viewing their updated report,’ says Fong.

The researchers also analysed the outcomes for individuals who did not recheck their credit scores. ‘Interestingly, one of our findings is that avoiding information may be helpful to some users in increasing their credit score,’ says Hunter. ‘Avoidance of repeat exposure to a negative score may better allow them to concentrate on solutions and improvement.’

The researchers said their study results suggest that consumer finance firms targeting only those with decreasing credit scores with retention emails may trigger more individuals to leave their platforms. A better approach may be to direct emails to all users or users with increasing scores.