The Relation Between Your Character And Credit-13

When the late American industrialist J.P. Morgan was asked what he

considered the best bank collateral, he responded with a single word:

"character."

The primary factor in a positive credit decision is your personal

character.

The essence of character can be found in this short role-play.

Paulie: Donna, my dear friend, may I borrow $20?

Donna: Sure, anything for you

Some people define character as who you are when no one is looking.

In the case of your credit, character is not only who you are, but also

who you have been in the past. It is said that the best prediction of

today’s weather is what it was yesterday. Similarly, the best predictor of

your future credit behavior is your past behavior with your credit

accounts.

Character is your financial reputation with people and the marketplace.

To the potential lender, solid character means that you will make every

possible effort to repay the loan and avoid taking out loans that are

beyond your means.

The most common indication of your character is your credit score and

credit history as discovered through checks with the credit bureaus.

Character is also demonstrated through good credit referrences,

referrals and your contributions over time to the community.

In addition, most lenders will make a personal judgment of your character based on your presentation over the phone or in person. The

lender will usually sit down across the table from you and make an

assessment regarding his or her comfort level with you as a borrower. If

the words "bad risk" come to mind, you may not get a loan regardless of

how high your credit score is. This is not to say that a lender can make

a credit decision based on your physical appearance alone—thankfully,

we have credit protection laws that protect us against discrimination

based on race, gender or disabilities.

Character is a combination of objective measures, like your credit

history and score, and subjective judgment like your reputation and the

lender’s impression of you. There are techniques that can be used to

improve both the objective and subjective measures of character.

To improve the objective measures like the credit score and credit

history, start today to acquire more credit and use it responsibly. The

more credit that you have that is open and used responsibly, the more

your credit score will go up. If you have no credit at the moment, you are just a few short years away from the highest rated credit. If you have some “dings” or small mistakes in your credit history, you will want to engage in some credit repair.

For the subjective measures, the key to improvement is to build relationships and seek referrals and references As you think about your personal and business history, ask yourself who you have done business with in the past that can vouch for your timely payment history.

Even if a business doesn’t report to credit agencies, they can be positive

references for you. Send each of them a letter using the sample

reference letters in the appendix. Remind them of their pleasant

transaction with you and let them know you will be using them as a

credit reference. Give them the option of calling you if they would prefer

you didn’t.

This is a valuable tip. Always make the action on their part be your

least desired result. You get more “yeses” by default that way. Another

option is to ask the business to send you a letter of how you always pay

as agreed.

Referrals are a powerful example of your character. When people are in

business, they don’t give positive referrals lightly. The best kind of

referral is one from a person who is in a very similar business and has a

long-term relationship with the person to whom you are being referred.

For example, a direct banker-to-banker referral is far more powerful

than a mortgage broker to banker referral.