Consumer Credit Literacy: What Price Perception?

This paper considers the question of whether inaccurate self-assessment of credit is associated with undesirable financial market outcomes. Our analysis is empirical, and relies on two different datasets—a consumer survey conducted in 2000 by Freddie Mac, and 1.2 million mortgage loans originated in 2004. We find some support for our hypothesis that inaccurate self-assessments lead to increased probabilities of being denied credit, experiencing a “bad” financial event, or having a higher annual percentage rate on a mortgage.