I recently heard a radio talk-show host discussing the myriad of ways single people can meet up with the ‘hopeful’ love of their life, or if anything, at least a nice night out. And whether they meet through e-harmony.com, match.com, zoosk.com, or any other social app that might promise a successful connection, there is (among many others) one key data point missing from their questionnaires: a credit score1.
You may think that a credit score is only useful to determine a person’s credit history, but you’d be only half right. A credit score also tells a lot about a person’s character. Below, are some of my personal observations while counseling people on improving their financial position. And while these are my observations, they aren’t necessarily indicative or tantamount to any particular person.
A very high score (800 plus FICO2) might indicate personal traits such as:
- Responsible
- Organized
- Reliable
- Conservative
- Has Self-control
- Patient
- Successful
- A planner
- High self-preservation
In contrast, a low score (599 and lower FICO2) might reflect traits such as:
- Laziness
- Irresponsible
- Seeks immediate gratification
- Not reliable
- Experienced a major life “shake-up” in a bad way
- Lack of self-control
- Disorganized
- Spontaneous
- Risky behavior
The ‘credit score’ is a number indicating the credit worthiness of a borrower. Lenders use this number to determine how likely you are to default on a loan given to you. You need money, and the lender wants to lend it out. The lender needs to have a certain amount of confidence that you’ll pay it back on schedule according to the terms of the agreement. A simple and quick inquiry to your credit score sometimes provides all the information an institution needs in order to make a loan or credit offer.
A primary benefit of having a high credit score is the wide assortment of low-cost loans available to you—should you choose to use them. A high credit score typically qualifies you for the lowest available lending rate which can save you hundreds if not thousands of dollars per year in interest (or borrowing) costs.
In contrast, a poor (or low) credit score will most certainly raise the cost of borrowing on everything from a new mattress or automobile purchase, to a mortgage on your home.
What this means is that two people of the same age could make the same income, buy the same priced house in the same neighborhood, drive the same car, and purchase the same amount of groceries on the same type of credit card, but one of them would have hundreds of dollars left over at the end of the month while the other person is just scraping by.
Now, consider what happens when two people with completely different credit histories ultimately get married. Marital strife typically starts with disagreements on subjects ranging from how many kids they want to have to how often they should attend church. But according to a survey conducted by Sun Trust Bank, finances are the leading cause of stress in a marriage.3
In August of 2015, the Federal Reserve Board, in collaboration with the Brookings Institute and UCLA, conducted a major economic discussion titled: “Credit Scores and Committed Relationships.”4 Below, is a fantastic summary/abstract from this 57-page document:
[This paper presents novel evidence on the role of credit scores in the dynamics of committed relationships. We document substantial positive assortative matching with respect to credit scores, even when controlling for other socioeconomic and demographic characteristics.
As a result, individual-level differences in access to credit are largely preserved at the household level. Moreover, we find that the couples’ average level of and the match quality in credit scores, measured at the time of relationship formation, are highly predictive of subsequent separations. This result arises, in part, because initial credit scores and match quality predict subsequent credit usage and financial distress, which in turn are correlated with relationship dissolution.
Credit scores and match quality appear predictive of subsequent separations even beyond these credit channels, suggesting that credit scores reveal an individual’s relationship skill and level of commitment. We present ancillary evidence supporting the interpretation of this skill as trustworthiness.]4
As my personal observations have been similar to these studies while counseling people on improving their financial position, it is my belief that by utilizing a Certified Financial Planner before, and during marriage, can help couples to find a common ground set in reality. Frequent joint meetings and reviews with a financial planner can help couples to define and agree upon common goals. And if you think this sounds more like marriage counseling, you’re right. It is, to some extent.
What’s the ‘take-away’ from this? Couples should communicate openly and frequently about their financial goals to each other. If/when a major financially related disagreement begins to present itself, they should seek the services of a Certified Financial Planner who can rationalize the situation and allow both parties to find common ground. It’s not a guarantee that common ground will be found. But it’s better than harboring the angst between the two of you alone.
References