There's a word for that sort of thing.
See "2."
con·fab·u·late (k…n-f²b“y…-l³t”) intr.v. con·fab·u·lat·ed, con·fab·u·lat·ing, con·fab·u·lates. 1. To talk casually; chat. 2. Psychology. To replace fact with fantasy unconsciously in memory. --con·fab”u·la“tion n. --con·fab“u·la”tor n. --con·fab“u·la·to”ry (-l…-tôr”¶, -t½r”¶) adj.
And anything earlier has an easier word.
"Lie".
Arf