
Credit Scores and Committed Relationships - T-A
http://www.brookings.edu/research/papers/2015/10/02-credit-scores-committed-relationships-dokko
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sksk
This is a very interesting study. Anyone who has worked in the consumer credit
industry will know that credit scores are correlated with a whole bunch of
things -- your standard credit default to insurance claims to employment.
Anytime you need to identify 'responsible' individuals, credit scores can act
as a pretty good proxy although using credit scores is legally kosher only in
certain situations.

I think their trustworthiness hypothesis is probably weaker than other parts
of their analysis. I have my own hypothesis based on my experience working in
this industry: Staying in a committed relationship may not be really about
'responsible' behavior but could be due to similarity of financial management
styles. Most marriage counselors talk about 'sorting out your finances' before
getting married; credit scores are essentially capturing that issue -- people
who have very good credit scores tend to be savers (although credit scores do
not use income or wealth into account) and ones who have poor scores tend to
be financially poor and for the large part spend more than they can afford.
Also people with good scores tend to be manage finances in a particular way --
pay bills early, monitor balances regularly, etc. -- while the ones with poor
credit scores do not usually pay much attention to finances and miss payments
frequently.

When you have two people with two different styles of managing money, it can
lead to a strained relationship and subsequently lead to separation.

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ap22213
To me, it's simpler. You have people who 'believe' in the current system and
their role in keeping it stable and sustainable. And, you have people who
don't believe or just don't care.

I am unfortunately a believer. I've always wanted to disregard the whole
silly, archaic system, but I can't. I'm very 'responsible' by nurture. My
spouse is also a believer. We have a very stable relationship, we're very
responsible, trustable, and, of course, have perfect credit scores all because
of our silly beliefs.

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hueving
>You have people who 'believe' in the current system and their role in keeping
it stable and sustainable.

I'm not sure what you mean by 'believe' but it makes it sound like there
aren't obvious, objective benefits to paying bills and having a good credit
score. I don't like the system either, but it results in me not having to pay
higher interest rates on loans, not having to put down large deposits for
rent, getting to purchase things on credit, etc.

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logicchains
>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.

From an economic perspective this looks like time preference. Individuals who
place a greater value on enjoyment in the present compared to enjoyment at
some time in future are less likely to save money for the future, preferring
to enjoy it now, and are also less likely to persist through the difficult
parts of a relationship in pursuit of some future benefit from having a
lasting relationship. I prefer the economic perspective as it's more
impartial, and doesn't make the assumption that lack of "relationship skill"
is the cause of relationship failure.

~~~
danieltillett
I thought credit scores were more influenced by payment promptness and
reliability rather than saving propensity. Isn’t one of the problems with
people with high savings and no debt is that their credit score is lowish
purely because they don’t have any evidence of prompt payment of debt?

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sksk
While your statement about payment promptness is correct, people with good
scores tend to save more than others (scores do not use savings or income or
wealth into account, however).

Credit scores only penalize you when you don't have any credit but most of
these good score folks tend to have (or had) a mortgage or have had auto
loans, etc. Just because they are not actively opening new accounts does not
mean they will be penalized -- credit scores look at pretty much everything in
your report and they get credit for their historical good behavior.

Another thing to consider is that good credit scores leads to a positive
cycle: you don't pay high interest rates on your loans and the extra money
saved here allows you to pay down obligations faster, which in turn allows you
to save more in the long run.

~~~
danieltillett
What about people with no debt? If you own your home and don’t carry any
consumer debt then you look like a bad credit risk despite being one of the
best risks.

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sksk
It depends on what you mean by 'no debt'. If you mean, they have never ever
had a loan then they will most likely not even have a score or a poor one
(they will be categorized as a 'no hit' or 'thin file'). Don't have stats top
of my head for this group but my hunch is no-hit / thin-file are people with
poor access to credit and not many actively avoid debt altogether.

If you mean, they had debt but they paid it all off, then they will still get
a lot of credit for it. Credit scores look at your 'oldest tradeline' and
maintaining good credit over many years is viewed favorably. Their scores will
not be as high as someone who had recent credit transaction and managing it
well (all else being equal), however, it will still be very good. If you look
at the FICO Score, anything above a 760 or 780 is usually just bragging rights
-- it hardly changes your rates on mortgages or loans.

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hugh4
I'd lived in the US for about five years before I bothered to get a credit
rating. I remember when I was renting an apartment the agent looked shocked
that I didn't have one.

"How can you not have a credit rating? Don't you have a car? Or a phone?"

I said "Uh yeah, I paid cash for my car, and my phone is prepaid".

I had a helluva time convincing him that someone who never has to borrow money
(and can buy brand new cars for cash) is a _better_ credit risk than someone
who borrows money all the freaking time.

Eventually I gave in and got a credit card for the sake of miles. Sheesh!

~~~
danieltillett
It is amazing this isn’t it. Being rich enough to not need to borrow makes you
a bad credit risk.

We seem to have some very knowledgable people here so why is it that credit
scores don’t start at a default value and go up or down based on your credit
history. Why is a rich person with no debt and huge amount of assets more of a
risk than an undischarged bankrupt?

~~~
sksk
>> Why is a rich person with no debt and huge amount of assets more of a risk
than an undischarged bankrupt?

Good point and as mseebach points out absence of information is a signal and
these type of no-debt cases are very rare that is hard to build a model
around.

At our start-up SimplyCredit, we look at things holistically, not just your
credit score and that should help with your concern. However, it is harder to
do this effectively without proper data at scale. I wish the govt. made
different types of data about the borrower available to lenders (with
permission from the borrower of course) -- for example, it will be nice to
know electronically someone paid for mortgage outright or their income
statements, etc. Right now people attempting to use this information have to
resort to approaches that Mint uses (scraping, partnership with banks to not
block them, etc.).

That said, credit scores actually work in a manner similar to what you
suggest. Credit scores are 'centered' around a value and good things get you
+score1 and bad things get you -score2, bad things you didn't do +score3, etc.
It is not exactly what you suggest as no-hits don't automatically get neutral
rating -- most case those apps will get rejected.

~~~
danieltillett
People without a credit score fall into three categories which really have
nothing in common in regards risk. 1. The unbanked (i.e. very poor). 2. The
very wealthy or the moderately wealthy with an aversion to debt. 3. Recent
immigrants. While I suspect 2 is relatively small, both 1 and 3 are quite
large pools. Treating all three as a greater risk than someone with a history
of poor debt management seems perverse.

The risk profile of a recent legal immigrant with a PhD and a high paying job
is very different to someone that has never had a bank account and who has
worked for cash in hand. Why treat them the same? At the very least let
someone with no history of credit establish a credit score baseline based on
their international history, current income, and assets.

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danieltillett
Credit scores are like g in that they are highly predictive of a wide range of
seeming unrelated human activities. I am always amazed at how humans are so
predictable from such simple scores.

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jboggan
So we need to make a new dating app that matches you by your credit score?

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austrian
Companies in America repeatedly charge people $10, $50, $200 or more than they
should have, and then you either have to pay to hire a lawyer or pay them. If
you don't then you get a bad credit score, and all the other companies that
use the credit system will charge you more.

In Austria, credit bureaus like in America are seen as corrupt and criminal.
China also doesn't have a central credit bureau.

I feel bad for every american when I hear intelligent people muse about making
it more complex. You are just increasing the ability of companies to walk on
the poor. This creates a bad bottom end of society, which America suffers from
and Austria does not.

America has crumbling cities like Detroit, and it's because of the criminal
thieving credit bureau, but here in this thread we have lots of people talking
about the credit bureau without even taking civilization into account.

~~~
hugh4
That's rather a long bow to draw based on the occasional overcharge (which you
should be able to get your credit card company to reverse anyway).

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austrian
No its not. I imagine there are millions of lower class people in America that
get charged an extra $50-$500 every month with a dare to hire a lawyer or take
a hit on their credit score, of which they can take neither, so they pay a
thief his made up fees. There's probably other examples of this I could
imagine. Without even speaking about the psychological trauma that is present
here, it looks about as criminal as stealing lunch money from random people.

This isn't civilized behavior and it should not be tolerated in the USA.

~~~
hugh4
Statistically if it's never once happened to me it's unlikely that it happens
to millions of people a month. I'm not sure where you're getting your
information from.

