2015 Series • No. 15–2
Research Department Working Papers
Nudging Credit Scores in the Field: The Effect of Text Reminders on Creditworthiness in the United States 
Given the fundamental role that credit scores play in day-to-day life in the United States, it is very important to understand what can be done to help individuals improve their credit scores. This question is important in general, and especially important for the low-to-moderate-income (LMI) individuals who likely have a greater need for access to liquidity than higher-income individuals. In this paper the authors report results from a field experiment conducted between early 2013 and early 2014 in Boston, Massachusetts, with LMI taxpayers who were offered credit advising services. Taxpayers who opted into the advising sessions were randomized as to whether they received extra information on credit scores and the average APR (annual payment rate) on basic credit cards in their area (the "information" condition), and, independently, as to whether or not they received monthly text reminders (the "text" condition). These reminders included the individual's financial goal and credit score range, reminders to pay bills on time and to pay at least the minimum amount, and updated interest rate information on basic credit cards.
Key Findings
- Monthly text reminders had a positive effect, a gain of 23–24 points on average, on the credit scores of individuals who initially had low scores (below 584), no effect on the credit scores of initially mid-score individuals (584–671), and a negative effect of about 17–18 points on the credit scores of individuals who started with high credit scores (672 or higher).
- The effect of information about the relationship between credit scores and average APR had a marginal effect in decreasing the number of credit report inquiries for low-score individuals and in reducing the number of collection accounts among mid-score individuals. For high-score individuals the information had a marginal effect in increasing total past-due amounts by an average of $81–$82, based on a comparison of the figures in the 2013 and 2014 credit reports.
- The positive effect of these interventions on low-score individuals comes from helping them achieve their debt goals and reduce their rate of credit use, and some weak evidence that the intervention helps them improve their payment patterns as reflected in delinquencies.
Implications
Other than the striking finding that text reminders can have an effect on creditworthiness, this study also shows that reminders can backfire and are not a magic pill: for high-score individuals, it seems that reminders may have made them slacken their financial self-discipline and increase their collection accounts. Thus, although these reminders are a tool available to use to help individuals improve their financial situations, one has to be cautious to avoid creating unintended results.
Abstract
In this paper we present evidence from a field experiment on the effect of text message reminders and credit card APR (annual payment rate) information on credit scores of low-to-moderate-income individuals. We find that individuals who initially had a low credit score benefited significantly from receiving the text reminders, while individuals who initially had a mid or high score did not. The positive effect on low-score individuals stems from the reduction of debt and better payment patterns. For mid-score individuals, we find a positive effect on payment patterns but no effect on credit scores; this may be because a better payment pattern is slower than a worse payment pattern to affect a credit score. For initially high-credit score individuals, we find a negative effect on credit scores, due to higher collection accounts. As for APR information, we find only sporadic effects: it helped reduce the number of inquiries for low-score individuals and reduce collection accounts of mid-score individuals, yet it contributed to greater past-due balances of high-score individuals.