Optimizing the Consumer Credit Experience
At some point along the way we all apply for credit. How can everyone be certain they are in the right condition to optimize the credit experience? Optimization in this case means getting the best rate of interest available.
Well, if you think through the credit investigation process there are many things a lender evaluates: Demographic information, income, stability, debt to income, asset accumulation, debts including contingent liability (co-signing for someone else’s loan), Insurances, a Will, and who could forget the Credit Report!
The credit report itself is a lot to manage even without all of the other categories stated above. Let me suggest there is a very simple ways to manage all of this and, it is organized in one place and only needs to be reviewed twice a year: June and December. That’s right on December 31 it will be necessary to decline the invitation to the New Years eve party in deference to a semi-annual personal financial review!
This review is managed and contained in your personal financial statement. The personal financial statement allows one to see, on one sheet of paper, all of the categories, and more, stated above. Let’s look at a few of them:
Assets are comprised of everything you own. The assets are segregated into groups like Cash, Stocks, Bonds, Real Estate, and Other Real Estate (Investment or second homes) along with Insurances etc.
Liabilities are everything you owe and are categorized as, Current Obligations (credit cards, bills) Bank Notes (cars and other personal debt), Mortgages etc.
Name, Rank & Serial Number, right! This also includes salary information along with questions like how long have you lived where you live and how long have you worked where you work.
Schedules ask for more specific information relative to Assets and Liabilities including balances, interest rates paid, and length of time remaining along with other detail.
In describing all of this you can see that your entire life really is contained on a Personal Financial Statement. At the same time you can see that in conducting a six month review of your statement it gives you a chance to manage all of it. Let me give you some examples:
How much are you paying for the coverages you need? In the six month intervening period has there been a family event of some kind that changes the coverage requirements? Has your personal credit improved in such a way that you might be able to pay less now than six months ago? If so, you just put money in your pocket!
Here you can do the same kind of review and see if you can pay less in interest on any remaining debt balances. This review should be comprehensive and include car loans, credit cards and other bank notes. Here is also the opportunity to set goals for debt reduction over the next six months! Write the goals down and track them.
Have rates decreased; can you take advantage of any changes? Here you can measure your progress and set goals to reduce mortgages faster than scheduled.
Goal setting is such an important part of the process. Determine which assets you want to increase and which liabilities you want to decrease. Measure, monitor and adjust every six months!
Keep files in each category for organizational purposes and to make tax season easier. Spending a little time on a semi-annual basis with organization along the way will help tremendously. Studies have shown that people who take a pro-active approach to this side of their personal financial management become a part of the wealthy population.
This management method will also keep your credit score closer to the top of the scale, because of your keen awareness, and will help you optimize interest rate options in all of your credit decisions.
Larry Friis is the Principal at High-touch Leadership, an advisory services firm for the financial services industry. He has served on the Board of Directors of two financial institutions and is a Professional speaker, a Doctoral Candidate, and an Adjunct Professor. He was a banker for more than 20 years. Larry can be reached at email@example.com