Smart planning is all about having an attractive and fundable credit profile already in play before any disaster. Unexpected events that reverberate throughout the world such as catastrophes or pandemics can mess up the goals you’ve set for yourself in unexpected ways, and that includes your goals for fundability. Merill Chandler discusses smart planning and what you need to do to make your fundability plans disaster-proof. A little bit of planning goes a long way, and that goes double for smart plans that are well-thought-out with contingencies built in for almost any case of emergency.
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How The Current Pandemic May Impact Your Fundability
There are two messages that are vital in this whole Coronavirus recession conversation. These messages are coming from lenders. We had one of our funding hackers ask the question. Forrest puts out, “Is this a good time to request increases in our credit cards?” I want to address what this means because even if a creditor says, “I will put forbearance on your payments or forbearance on your collection activities,” making a payment has nothing to do with how they rate your credit profile. That account is rated by FICO. I’ve been through four recessions in my life. If you do not pay as agreed, they are going to report it as “not paid as agreed” and it will be delinquent.
If somebody offers you and says, “We’ve got a new agreement, sign this new agreement for forbearance,” or you have it in writing from the organization that they will not report it negatively to your credit profile, then that is worth trusting. You have got to have that in writing. Do not take the representative’s word for it. Don’t let somebody just say, “No one’s going to report it.” I’ll tell you a true story. In the mortgage crisis, we had people coming to us all the time because when the credit markets froze, even though our clients were fundable, the lenders were not offering a lot of credit.
Brad and I went into protecting people from unlawful foreclosure. To get even a loan modification, representatives were telling every borrower in America, “You need to go at least three months late before somebody will consider you for a loan modification.” They would say, “Was that going to be bad on my credit?” These representatives would say, “No, it’s not.” That was a blatant lie. Unless your lender says, “Yes, we can lower your payment or forgive three payments,” because they’re still going to charge interest on that and just add it to the back, you have to have in writing that they are not going to report that negatively. Here’s why. We talked about it in the bootcamp and CreditSense clients. What you need to understand is credit reporting is not credit scoring. They’re not the same thing.
If the creditor says, “We won’t show you having a payment,” if you didn’t have a payment, FICO is going to report that as not having a payment. Your credit is going to tank. In every way, you have got to find out from each lender what your options are. Forrest, “Is it good to request a credit limit increase?” Here’s the problem. Remember how the FICO and lender software are tracking borrower behavior, that internal performance data. If you have asked for a credit line increase faithfully every six months for the last two years, and the next six-month period has elapsed and you’re asking for another one, it’s not going to harm you.
If you have gone 8, 10, 12, 24 months and you’ve never asked for a credit line increase and you ask now, you’re going to get hit with a negative indicator on your performance data because you’re asking because you’re afraid. If you are afraid and your borrower behavior reflects this fear, they’re tracking that data. I guarantee it. I went to one of the VPs of FICO’s presentation. Her name is Sally. She did the presentation on which of your 680 will survive the next recession? FICO has the FSSI, it’s a Financial Score Stress Indicator. I’ve been telling you, get on board, get coaching, ask the questions in Insider Secrets or in Funding Hackers because we’re supposed to have done all of this preparatory to a recession.
I’ve been talking for years about how to prepare for a recession. My show has this. We’re going to go over a few of the points that we need to do. First of all, if you’re going to increase a credit limit, increase it on your business credit cards or credit lines, not your personal. You do not want to mess with the goose that lays the golden eggs. Secondly, if you’re going to get a credit limit increase or ask one, unless you’re on a regularly scheduled process of raising limits, I wouldn’t do it because I don’t want to burn my relationship. I got a brand-new card with Chase Southwest on my business. I’m not going to ask for a credit line increase because I do not want to put myself in the risk department by having fearful behavior.
We may call it smart planning. You know me. I call it like it is. Waiting for the Coronavirus and then doing a behavior is not smart planning. Smart planning is to have an awesome fundable profile already in play. If you don’t have it on your personal credit profile, in order to protect against limits being lowered or cards canceled, you need to do no more than 38% either traffic balance or utilization reported on the reporting date. Preferably, I want you to go through the next six months of stress with 10% to 20% traffic on those cards and nothing else. If you have to carry a balance, do it on your business side.
If you have an EIN number, you can apply for any of the Chase business credit cards. Vet them and you got asked the questions because we’re all in a rush. American Express has the Blue credit card. Check them, vet it and ask the same question until you get the same answer three times, “If I get this card, does it report to my personal profile?” If it continues to say no three times, then get that one. If you’re going to stock up on credit, do it over on the business side. No Capital Ones or Discovers. None of the charge cards offered by American Express. The platinum and the gold are all charged cards and they are going to end up reporting on your personal.
If you need some extra credit, do it on your business. If you’re a client and you don’t have your QFE, Qualified Fundable Entity, in play yet, then make sure that you talk to your team and they can help guide you. If you’re looking to get credit, do it on your business. We will even accept credit on other non-QFE businesses if you’re worried. The answer is I wouldn’t do it, not on the personal. Even if the lender says, “We’re willing to raise credit limits,” the problem is the timing. The behavior that you’re doing it is during a suspect time.
Finally, raising that credit limit, we have the tendency to use credit and that’s where we’re going to get into trouble. For those of you who are in Finance.com, George’s people. Hopefully, you’ve been stockpiling your money. The way I do it is I don’t have reserves dedicated towards my accounts. I did an episode on this, go read it. My reserves are in credits to every place where I pay a bill, my cell bills, my utilities and my internet. Everything that I owe a bill that’s on an autopay or otherwise, my savings is six months of having those in play. I don’t have all of them in play yet or I don’t have six months on all of them.Smart planning is to have an awesome fundable profile already in play before disaster strikes. Click To Tweet
The idea is to create in advanced, then you can have cash stored. That’s where George and I differ a little bit there. Neither one of them is better than the other. I’m just giving you my methodology because I know we have lots and lots of finance people that are reading or are a part of finance. I advance all of those prepay on my credit accounts. That way my cash can be for food, groceries, gasoline, etc. I can afford to maintain my regular payments on my credit cards, my regular traffic of 10% to 20%. This is important.
Some forecasters are predicting a shrinking of the economy annualized at 5%. Five percent divided by four is 1.75%-ish something. The economy may shrink. Be prepared for that. We talked about the interest rate. These risks are real. We’ve talked about your traffic patterns and savings. Your savings accounts are best held in my world of having prepayments or credit accounts so that the payments for my rent, mortgage, all of those are prepaid. For those credit accounts, we talked about anything that’s prepaid, you may get additional FICO points as a result. Kyle, in our Funding Hacker’s group had another great question, “Does it change the strategy of getting fundable while we go through this process?”
First of all, I don’t believe this process is permanent, the Coronavirus. I’ve been here for SARS, Avian Flu, Bird Flu and Hantavirus. We’ve had a dozen scares over my lifetime and we’ve always made it through. We’re awesome people. We’re a resilient group and entrepreneurs are the most resilient of all. We live from a framework of hope and ambition. You combine hope and ambition together, we’re slaying it. One of the articles that Skigh, our producer, was researching for this particular event. She found that the FDIC was asking lenders to be willing to raise limits. Here’s the next principle I want to review.
Just because someone says it’s a law doesn’t mean that the law takes into account your credit profile. Here’s a perfect example. Back in the Gulf War, the bank said that those who are in service, they’d put a moratorium on all their payments, but FICO was still grading them as delinquent. It took all of the service groups and the consumer advocates to shout down Congress about saying it’s not fair. If you’re going to put a moratorium on the payment, make sure that the lack of payment does not reflect negatively on these men and women’s profiles. Until someone says, “Congress mandated credit limit increases by 20% across the board,” or, “We’re going to put moratoriums on people who have document approved that have the virus.”
Just because it’s a moratorium doesn’t mean it’s not going to reflect as a delinquent on your credit profile and scores going to punish your ass. Our producer is all over this doing the research necessary to keep me aware. She’s doing all the heavy lifting and I’m going to be the talking head. Our team is dedicated to doing the research and I want to make sure that you are stay informed. We’re going to be talking about a great thing. I have all the skinny on FICO 10 that was announced and a version of FICO software that’s going to be coming out.
Stay tuned. Always make sure that you always follow the Get Fundable Facebook group, the blog, Funding Hackers group, Insider Secrets for Solutions Coaching clients. This is a great time if you haven’t set up your remote banking and your mobile banking, do that. We do everything from our remote banking. We make your ACH deposits and your credit card. We are capable and this is doing no harm to our business. We are here fully ready to support you as our students at Funding Hackers and to support our Solutions Coaching clients.
One of the things that was offered, be careful of zero-interest. An easy way for the banks to play nice with consumers and with borrowers is they may extend your zero interest. There’s no negative score impact. If they extend, no interest is paid, but you have to pay your monthly payment of principal only. Make sure you never make the minimum payment. As I always teach, pay more and never the same amount. If your payment is $50, pay $51, $53, $57, $62, $59, $55. Never make the same payment twice or at least within the year. Do not get zero interest cards.
I’m working on a project. We’re building our fundability on the idea of Maslow’s Hierarchy of Needs, this hierarchy of fundability. At the very base is cash is king and you’ve got to take care of your family. If you have to go into debt to do so, I totally get it. I have been there. If you’re going to get a zero-interest card, then you’ve got to be so sensitive in your own brain chemistry. A zero-interest card makes it seem like, “We can afford to put more on it because we can afford a zero-interest payment.” While that may help with your cashflow, recession or not, your utilization is reported to the bureaus from your lenders and calculated by FICO. You’re 24 months lookback period is still in play. Do not be seduced by the zero-interest card because, “I can afford $200 a month payments. I’m going to take this $6,000 card and I’m going to charge it to $5,000.” Don’t do it. You will ruin the long-term fundability of your profile.
Strategies for protecting, we covered them. Be careful of the offers. Any offer that you’re made to stop a payment is called forbearance or put a moratorium on your payments. Make sure that there is no negative impact to your credit profile or you will have killed your profile and you didn’t know it was coming. Make sure you take care of your profile. Ask questions in the Get Fundable, Funding Hackers and Insider Secrets if you’re not a student or client. We are monitoring this every single day and I’m going to be doing my best to do a Facebook Live every single day that will give updates and keep us focused on getting you fundable even if you have to wear a face mask when you go to the bank to sign the paperwork. I want you to be able to continue your effort through fundability.
Let’s pretend that the worst case happens. We have this massive recession. That may mean that credit markets freeze. They’re not offering credit lines or giving out credit cards for a while. Here’s what I learned in 2008. If you will continue your fundability tactics, you’re implementing your borrower behaviors, you’re building your 24-month lookback period to be bulletproof. Use this time to modify your borrower behaviors to make them fundable. Because just like 2008 and 2010, credit markets started back up and we’re all back in business. As you saw at the markets, we went from whatever it was 8,000 to 11,000 in the stock market, all the way to 29,000 in a ten-year bull market. Whatever happens in this reset, commit yourselves to keep the fundability tactics that we teach you.Humans are a resilient group, and entrepreneurs are the most resilient of all. Click To Tweet
Do the right things and you will continue to build a fundable profile and you will make that 24-month lookback period if it lasts 24 months. Let’s say it will last three months, six months, each one of those are intervals in the 24-month lookback period. We don’t care. Keep doing the right behaviors and you’re going to come out of this bulletproof. This is the time to lean in. This is the time to move forward. I don’t care if you’re by yourself and you’re hunkered down in your bunker, 10% to 20% on your personal cards. Never report more on the reporting date than 38%. Keep your utilization down, zero on the due date, all on the personal. Carry anything you need to carry over on the business. Let’s build 24 months of spectacular track record and we’d come out of this bulletproof. Make sure we are all on this together. We love you. God speed. God bless and take care of you and your loved ones. Bye.
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