We live in uncertain times. Uncertainty spooks financial markets and keeps a lid on lending. It gives millions of businesses a legitimate argument to sit on the sidelines hoarding trillions of dollars that could otherwise fuel meaningful economic expansion. That private sector money could fuel the most effective "stimulus program" this country has ever known if only some market confidence could be fostered. But these are all things that are beyond our control.
Some degree of uncertainty is unavoidable when it comes to jobs, raising children, the environment, health concerns and -- unfortunately -- our political system, but there are things that we can control. Our credit profiles are definitely one of those things. If you're serious about getting a handle on your credit, forget making a new year's resolution. They usually fail -- 88 percent of them do, according to some estimates. A well-thought plan, with tangible steps and goals, on the other hand, is a different story.
Before you start rolling your eyes and listing the innumerable things that are confusing and arguably unfair in the world of credit, consider this: For better or worse, your credit is your digital fingerprint for an increasing number of institutions, both financial and otherwise. Rightly or wrongly, these institutions use it to gauge what kind of person you are and that judgment can have a direct impact on your access to money. So your credit is a portfolio not unlike other portfolios you may have.
For example, the investment portfolio is a familiar concept. That's the place where we grow our savings. Credit is also an asset -- part wealth-building tool, and part security blanket. We can build it, nurture it, manage it and protect it, or we can opt to throw caution to the wind and embrace a life of uncertainty so that every credit and job application we submit becomes a Maalox moment. (That's right, some employers do look at credit reports.)
Like an investment portfolio, a credit portfolio takes shape slowly, meaningfully and with deliberation, and when it's not well managed, it can be destroyed in the blink of an eye. Everything from identity theft to job loss, death, illness, irrational spending sprees or unbridled credit binges can tank your score and severely damage your underlying credit profile. But there are simple things you can do to create your credit comfort zone.
When it comes to financial matters, especially credit, new year's resolutions are about as effective as they are long lasting. You need a real plan to build a personal credit comfort zone.
The New Year is always a good time to review past performance and make adjustments for the coming twelve months. What worked? What didn't? Like a football coaching staff reviewing plays and making second half adjustments, we should all be in the habit of these spot inventories.
We've just hit January's midpoint, when resolutions typically fall by the wayside. And that's fine, because resolutions, by their very nature, are for quitters. Plans, on the other hand, are for people who want to get something done. A credit portfolio building plan should consist of several components, all interconnected and each a platform for recovery and financial evolution. Viewing credit as portfolio can help convert the traditional holiday churn-and-burn process from an annual ritual of excess and recovery into a new way of life that works.
Here are the usual strictures:
- I will curb my spending in the new year.
- I will systematically reduce my credit balances to reasonable levels.
- I will pay more attention to my credit limits and cash balances.
- I will be more attentive to activities in my credit and bank accounts.
- I will make a budget and stick to it religiously.
- I will live within my means.
But you know very well that the cycle that never ends must end. If it doesn't, the financial dysfunction will continue and the hole we dig for ourselves only becomes deeper. Kicking the habit requires discipline, self-awareness and a willingness to break self-destructive patterns.
There are those who view credit reports as a manifestation of one's prowess at money management. I view them as self-awareness vehicles.
Paying bills on time, having a rational relationship between the credit you have and the amount you use, building a long credit history, having a good mix of credit accounts (mortgages, credit cards and auto loans) and not going on a credit acquisition binge are starting points.
Too often consumers avoid looking at their credit reports because they are convinced that the news is bad and/or unnecessary -- unless and until they need to make a transaction that involves credit. It's a mistake to think that way. With the myriad opportunities we have to review our credit profiles and scores, there is no good reason to avoid them. That only one in five take advantage of their free credit report from each of the three agencies available for public access at the federally mandated site AnnualCreditReport.com speaks volumes about public reluctance to monitor credit.
Credit.com can also show you the high points of your credit report with our free Credit Report Card. You can get your Experian Score (with a comparison of how it relates to the ever-pervasive FICO and Vantage Scores), a grade on how you're doing in the five major areas that comprise a credit score, see how you compare to others and find offers for products and services that are a good match for you. And, we are not alone. Other sites offer similar programs. The real payoff only comes if you pay attention!
What if the information in your credit report is wrong? Demand a correction! By law, it will have to be handled within 30 days. If the information is correct but negative, place a 100-word clarification in your file or develop a compelling argument to effectively present your case as to what went wrong, how you are curing the situation and when you anticipate seeing improvement.
Credit can work for you if you treat it as something you manage, not a chronicle of unfortunate things that happen to you.
Successful money managers deal with adversity and turn lemons into lemonade. Your credit is your economic resume that you can control and build; provided, you are on top of it. Whether you pay for monitoring programs, personally monitor your credit and debit accounts daily or enroll in programs offered by banks and credit card companies to stay up on transactions in your credit card or bank accounts, you call the shots and reap the rewards of your vigilance.
Always keep in mind -- regardless of how many laws are on the books to protect us, or how vigorously enforced, the ultimate guardian of the consumer is the consumer. No one has a greater incentive to protect our financial security than we do. No one has a greater knowledge of what we do than we do.
Build a comfortable credit zone. Build a comfortable life. Start now in 2013.
Adam Levin is chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.