Patience and Credit Repair: What Can We Learn?

Is patience really a virtue? When it comes to credit scoring, the empirical answer is yes. A study published by the Association for Psychological Science found that impatient people are more likely to have lower credit scores. Researchers recruited 437 volunteers with similar financial backgrounds to participate in the study. Each volunteer was taken through their annual tax preparation and given a choice between an immediate, small return, or a larger return in the future. Participants who were unwilling to wait for the larger reward had the lowest credit scores.

Behavioral science has taught us the value of waiting for gratification and the correlation between impatience and loss. If you’ve ever heard of Walter Mischel’s marshmallow experiment, you understand why waiting is difficult, but ultimately worthwhile (view an example here).

So, what can we learn from these studies when it comes to personal finance and credit repair? Impatience has the power to damage your finances in many ways, including:

1. Savings.

The “I need it now” mentality comes with inherent risks. Sure, you’re getting what you want at the moment you want it, but what does that mean for your future? If you are unable to wait to buy the latest phone, save up for a vacation or generally build an emergency fund, you risk:

  • Running up credit card bills. Make no mistake: credit card companies are counting on your impatience. Using credit to fuel your spending habits will result in high balances, high interest rates and a lower credit score. Overwhelming debt also means you’ll be paying it off for months or even years, forcing you to save less and spend more. While it may be tough, take the time to save the funds you need rather than relying on credit.
  • Depleting your savings account. You may not be a credit card junkie, but that doesn’t mean you aren’t hurting your savings account. If you are guilty of dipping into savings without a good reason, you’re probably putting yourself at risk. It’s important to save at least 10 percent of your monthly income to prepare for emergencies, e.g., medical expenses, home repairs, job loss, etc. Emptying your bank account is a fast way to lead yourself into credit damage. Consider the bigger picture when it comes to spending by prioritizing financial safety over short-term satisfaction.

2. Retirement planning and investments.

A good financial planner will advise you to practice patience in the stock market, but self-managed retirees face a war between their own impulses and their financial health. Consider the following example:

Michael recently began a job in a new city. Rather than searching for a financial planner to advise him, he decided to try his hand at retirement planning. Within the first six months, Michael had made several changes to his mutual fund investments, and bought and sold several stocks on the side. By the end of the year, his portfolio had suffered a 12 percent loss.

Long-term investments require long-term patience. Over-managing your accounts could prevent you from yielding greater results, which could also prevent you from retiring at a reasonable age. Unless you’ve got the skills, don’t rely on your own willpower. Stick with an objective professional.

3. Long-term credit improvement.

 Credit repair doesn’t happen overnight. It’s a lifestyle change that helps you learn to budget, save, plan and avoid future damage. Above all, these changes require patience. Some improvements may be fast and easy, but others need time to unfold. The bottom line: Patience may be hard for you, but the long-term benefits of waiting are sure to outweigh short-term discomfort. Summon your strength and stick to your goals.