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Rice University and the University of Delaware recently discovered that people who tell good stories can profit… literally. Through its recent research, a team from the two universities found that the chances of receiving a peer-to-peer micro loan may improve if a person can weave a yarn to explain a substandard credit score.

Tellers of tall tales finally have a useful (and financially rewarding) purpose for their stories.

The research revealed that peer-to-peer lending decisions were more affected by information that is unverifiable, like personal narratives, than by credit histories, scores, and other verifiable details. This recent study builds on research conducted previously by Rick Andrews of the University of Delaware.

He studied how traditional financial institutions have altered their operations due to peer-to-peer lending.

An alternative to short-term funding like cash advances, peer-to-peer borrowers submit loan requests that are reviewed by private investors. The investors read the justifications for the loan requests and review credit history and scores as well as personal endorsements in order to come to a decision.

An approved borrower makes a fixed monthly payment and the investor funding the loan receives a portion of the payment.

Results show that micro-lenders are more likely to provide a borrower with a loan if the applicant explains the credit history, admitting or denying any blemishes. Borrowers who confess their previous financial mistakes and explain the corrective measures taken are viewed as more trustworthy.

This factor increases their chances of being approved for a loan, even if hard evidence is not available.

By being viewed as trustworthy, borrowers can decrease their costs by nearly 30 percent, saving approximately $375 in interest, claimed the study. Just 45.8 percent of borrowers without statements and explanations regarding credit history were approved for loans.

This compared to an approval of 65.3 percent of requests that included such a statement.