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The Predictive Power of the Unromantic Credit Score

Credit scores and bankruptcy frequently intersect. Primarily, debtors are concerned about the impact a bankruptcy filing will have on them. It’s not a trivial concern: Credit scores have gone beyond determining creditworthiness to evaluating housing and employment prospects, although New York City has banned many employers from using job applicants’ credit scores as a screening tool. In the end, credit scores usually bounce back for New York bankruptcy debtors.

But recently researchers at the Federal Reserve Bank of New York have questioned the impact of credit scores on … romance, and because marriage and bankruptcy intersect as well, it’s worthwhile to explore their findings.

To begin with, the researchers sampled a large pool of consumers who cohabitated for more than one year. They carefully sifted the data to exclude households of adult family members and roommate arrangements. With this information in hand, the researchers evaluated the extent to which couples’ credit scores correspond to long-term relationship formation, endurance, and dissolution. Here’s a summary of the results:

Relationship formation: Similarity in credit scores corresponds strongly with relationship formation, with a correlation coefficient of 0.6 (out of 1). The average difference in credit scores between two partners is 69 points while the average for two random individuals is 150. After attempting to factor out other demographic characteristics (race, education, and incomes), the correlation coefficient falls to only 0.5.

Moreover, the authors found that people with higher credit scores are more likely to form committed relationships than those who don’t. Of all the demographic characteristics they studied, college education actually has a slight negative connection to relationship formation. (The authors did not focus on student-loan debt specifically.)

Relationship endurance: Interestingly, the average differences in couples’ credit scores converges fairly rapidly when cohabitation begins, and in one-third of the cases the partner with the lower score switches places with the one with the higher score after four years. The authors attribute this phenomenon to the benefits of shared resources in relationships.

Relationship dissolution: The lower an individual’s credit score, the more likely he or she is to suffer a relationship dissolution. This holds true even after accounting for demographic characteristics, but oddly consumers living in areas with a high concentration of college graduates are more likely to separate than in other areas.

However, wider gaps in credit scores within couples increases the likelihood of separation as well. Additionally, modest impacts to individuals’ credit scores, whether improving them or deteriorating them, tend to influence relationship dissolutions less than large events, which are almost always negative. In other words, defaults tend to greatly increase the likelihood of relationship dissolution than small behaviors that increase credit scores.

Where’s the trust? The relationships among the variables the researchers studied were so obvious and significant that they pondered whether credit scores indicated the consumers’ trustworthiness in other contexts. Comparing their findings with those from a separate, subjective survey of community trustworthiness, the authors discovered that even after adjusting for income, higher credit scores corresponded to community trustworthiness. Finally, couples in higher-trust communities tended to separate at a lower rate than lower trust ones, indicating that high trust and credit scores are related by personal trustworthiness characteristics.

The full text of the Federal Reserve researchers’ paper can be found here (pdf).

Philosophers of virtue ethics and sociologists might have quite a bit to say about the paper’s findings. Bankruptcy lawyers, by contrast, recognize the benefits of getting people back on sound financial footing. Unpleasant statistics don’t apply to everyone, but discussing difficult financial circumstances with an experienced New York bankruptcy lawyer is better than a default that might lead to a relationship dissolution.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

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