Long-term Relationships and Credit Scores

Long-term Relationships and Credit Scores



Photo Credit: Vladimir Pustovit || But do they have compatible credit scores?

Unlike many commentators, I tend to think credit scores are a good thing. In a big world, it is difficult for large financial institutions to figure out the most import “C” of the four Cs of Credit — Character. Credit scores offer an imperfect but generally useful shortcut in what is often an anonymous world.

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In my last article on the topic, I noted that in addition to lending, credit scores are used in renting, insurance, employment, and a wide number of other areas. One new place where credit scores could prove useful is analyzing a prospective spouse. An academic paper suggests the following:

  • Birds of a feather flock together — in general, people tend to enter into long-term relationships those with similar credit scores.
  • Relationships with higher credit scores tend to last longer.
  • Those with larger gaps in the credit scores have a higher probability of the relationship ending sooner.

Though the paper is more broad than marriage, I am going to shift over to marriage for the rest of this article. Why? Every now and then, I get called in to do marriage counseling, typically along with my pastor and fellow elders. I’m not perfect, so my marriage isn’t perfect, but it is very good.

Marriages tend to fail because the husband and wife disagree on goals or methods for the partnership that they have entered into. Common disagreements and problems involve:

  • Money
  • Sex
  • Children — number, methods of raising
  • Lack of companionship — shared goals, responsibilities, etc.
  • Bad communication patterns
  • Sins that need to be repented of — anger & abuse, adultery & related, laziness, substance abuse, disdain, lying, etc.
  • And more — there are more ways to get it wrong than to get it right, just as there are more wrong answers on tests than right answers.

I’m only going to handle the money issue here, though laziness, lying, bad communication, and lack of clearly specifying and agreeing to goals play a large role in money problems. Going back to my earlier article on credit scores, you might recall that I said that credit scores were a moderately accurate measure of moral tendency on average. Quoting:

Honoring agreements that you have entered into is an important indicator of your personality. Those who do not repay are on average less moral than those that repay. Those that are net creditors on average made efforts that net debtors did not.

Credit scores are important. In a specific way, they measure your willingness to keep your word. Anytime you enter into a debt contract, you make a promise to repay. If you fulfill your promise to repay, you impress others as one of good moral character. If you don’t repay, it is vice-versa, you appear to be of low moral character. (Note: I am excluding those that got hoodwinked by lenders that defrauded borrowers in a variety of ways. That said, if you can be hoodwinked, that says something else about you, and that may have an impact on your creditworthiness as well.)

Now, before I continue, these concepts work on average, and not always in particular. I have helped some at the edge of society with gifts and loans. In some cases there is a cascade of bad events that the most intelligent would have a hard time facing. Being wise helps, but there are some situations that would tax the soul of anyone, and be difficult to claim that they were blameworthy; it’s just the way things happened.

The “keeping your word” part is important for marriage. After all, marriage begins with a simple public promise of mutual fidelity between a man and a woman. If you can’t keep your word in one area, i.e., paying off a debt, your ability to keep your word in another area, marital fidelity, may be less likely as well. As such, it shouldn’t be too surprising that those with higher credit scores tend to have longer lasting relationships on average. They keep their word better, and will tend to have fewer money problems, because they manage their finances well.

As for the couples that have dramatically different credit scores between the two of them, there is the possibility that the more responsible one will get fed up with the lack of discipline on the part of his/her spouse. Or, the one with less self-controlled spouse will grow to disdain the one trying to bring order. If not handled properly, it can lead to a breakup — no one wants to feel their resources are being wasted, and no one likes constant criticism.

No Determinism Here

For those that do have difficulties here, I can tell you that you can change. It is not a question of ability, but of willingness to do so. The same is true in saving any marriage. Ask, “Is this the way I wanted things to end up? Didn’t I have better goals than this?” and then get to: “Am I willing to give up my bad habits, my purely personal interests, my pride, for the good of my spouse? Am I willing to work in the best interests of the both of us, even if I don’t get everything I want?”

Tough stuff. It’s a wonder that any marriages hang together. But change is possible, and it usually begins with a shared commitment to agree on goals, execute those goals faithfully, leaving behind laziness, overspending and over-committing (taking on too much debt). Dave Ramsey and many others are good counselors in this area.

If you have never budgeted before, it will be time to do so. Again, there are many good guides on the Internet, and at bookstores. Find one that fits your personality and go with it. (I have never kept a budget in my life, so I would have a hard time advising there. I don’t spend much on myself, and neither does my wife.)

Telling you that you can raise your credit score is superfluous. That’s a symptom, not the disease. If you manage household finances well, and keep your word on paying debts on time, that will take care of itself. The harder thing is changing the bad habits of spending incautiously.

Now, in the short run, for couples where the two parties are different with willingness to manage money well, there is another solution if both parties are willing to do it. The one that is less disciplined with money should cede management of finances to the one that is more disciplined. The one that is more disciplined then gives the one that is less disciplined a regular allowance (mutually agreed upon). To husbands I would add that if the wife is the one who is better the money, cede that to her, and don’t let your pride get in the way. Be grateful that you have a bright and responsible wife, and take delight in it. Far better to have an orderly and well-run household than to have a household that is failing.

This is up to both parties to the marriage to make it work. It is easy to be selfish, and hard to accept the fact that we are flawed in the way that we handle relationships. Once humility comes (something that I need too), and communication improves, then real progress can be made in repairing household finances, and hopefully bigger things as well — life isn’t all about money. But when money is badly handled, it is an engine of relationship destruction.

Thus, if you have money problems in marriage, choose wisely, be humble and unselfish, and do what is best for the one that you pledged to love till death do you part.

Updated on

David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.
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