There probably is no more challenging time than now in our current pandemic for people with their financials. With so many out of jobs, financial stress has become more evident than ever. Helping you get out of that and recover with a soft landing, Merrill Chandler dedicates this episode to share with you some of the easy ways to save your fundability. He talks about how things can go sideways in recessions and how you can prepare for them and protect yourself. Join Merrill as he takes you deeper into your credit profile, lenders and banks, and some borrower behaviors in this conversation.
Watch the episode here:
Listen to the podcast here:
Easy Ways To Save Your Fundability If You’re In Financial Stress
In this episode, we’re going to be talking about things that may be very relevant to many of you, as you read, creating fundability or how to protect yourself. We’re going to be talking about how things can go sideways in recessions or personal financial stress, how to prepare for them and how to protect yourself and recover with a soft landing.
Our intention with every episode is to shine a light on a path that’s going to lead you to greater and higher funding approvals. One of the main ways that we can continue to be fundable is to protect our credit profile. What borrower behaviors are important to watch during financial stressful times? It doesn’t matter whether or not the stress is coming from outside world like a nationwide recession or job loss, health problems or a family–sized, individual financial stress. Let’s get to it.
How The Systems Work
First of all, one of the main things that we want to focus on is let’s spend a moment on reminding ourselves how the system works. Your borrower profile and your borrower behaviors are measured by FICO and lending software to determine if you are fundable. In recessionary times, in financially stressful times, the lenders only make money when they lend. When things get stressful out there, they tighten the funding guidelines so that only a bulls-eye borrower, somebody who’s super highly fundable continues to get approved.
You may have already experienced that if you’ve high balances for a long time, all of a sudden, you come to money, you get reemployed, you finished a project and you get paid. You start paying down those balances, likely is not, those lenders are going to start lowering those limits. Let’s start there with our first strategy about how to protect your limits if you’ve been carrying balances because you were living off them, paying bills off them while you didn’t have the resources to take care of those financial commitments.
Contact Your Lender
First strategy for maintaining during financial stress is that if you’ve been carrying high balances, before you start paying them down, you want to contact each lender and humbly, supplicating you want to say, “I value my relationship with you, guys. I love this credit card,” or as my main bank if you’ve got a checking account with them as well, “My financial situation has turned around.” You don’t say I got reemployed or I got a big windfall because those aren’t trustworthy metrics. Just say, “I got my legs under me. I had a bit of a rough patch and so my balances are a little high. I want to start paying those down, but because I love my relationship with you, what can I do so that you don’t continue to lower the limit as I pay down my balances.”Lenders only raise limits when they decide to give you limits. Click To Tweet
This does two things for you. Number one, we want to keep those limits high. Making a payment, many times people come to me going, “I thought I was doing right by my credit card company. I make a payment. All of a sudden, I go from $10,000 limit, $10,000 balance on my $10,000 card, I pay $1,000 off and they make my limit $9,050.” Here’s the difficulty and the thing we need to watch out for is that when they lower the limit back down so you’re near 100% utilization rate, the new balance that you pay down to is most of the new credit line, you’re back to 100% utilization.
What you’re trying to talk to and you can talk to a supervisor to do so, but you want to compel them, convince them that everything is good and you want to be given a test or probationary period. Let’s say you’re at $10,000 limit with $9,900 balance. I’m going to describe this as much detail as I can. We’re sitting at $10,000 limit. We have used $9,900 of it, which means we’re at 99% utilization. If we come in and we pay it down to $7,000 as our new balance on that $10,000 card and they lower it and make the new limit $7,050, now you’re back to 99% utilization. When we contact the lender, we want to be able to say, “I love my relationship with you, guys. You are the bomb. I acknowledge and I apologize for carrying such a high balance for so long. It wasn’t my intention. Now that things are back in play, can I make a payment?” Tell them how much you want to pay, $1,000, $500, some big chunk. Tell them, “I want to be able to keep this balance between $7,000 and $10,000. Can we please keep that there? Put me on probation. If I charge a dime to it between now and three months from now,” go for a small one. They may say six months, but asked for three months, “Can I keep this if I go for three months and never used that card, would that be okay with you? I’m trying to improve my utilization.”
Offering A Probation
Let’s say they accept and you’re at $7,000. You went from 99% if they would have lowered it, if they let you keep it. Now, you’re at 70% utilization. That’s a massive improvement to your fundability and you’re showing good faith, goodwill towards your lender as your lending partner. You’re showing that you’re trying to value their money because you used that whole credit card limit in order to survive or to get by. We want to convince them. The only thing that’s going to convince them of keeping that limit up is you offering a probation where you don’t use it.
We go out on a limb here. If you ask for it and then you violate it, it’s worse than if you didn’t ask for it before. If you say, “If I put a dime on this credit card, I understand that you’re lowering the limit,” but you’ve got to keep your word. This is a very powerful strategy to keep lowering it. Give them a plan, “Within 30 days or 6 months or 3 months, I want to get it down to 50%, $5,000. Can we do the same thing? I want to pay it down, but I want to keep the limit.” You’re at 50% utilization. Remember, for those of you who attended the bootcamp, read my book, anything under 40%, you’re out of the risk department, which is our end game. That’s where we want to be.
We want to get down to paying it off completely, but until that happens, our big goal is getting it under 40%. That means that we’re out of the risk department because you’ve been in the risk department for every moment you’ve been above that amount. Those are vital. Those are important measures to take so that you can keep these limits. When they decide to give you limits again, they’ll only consider raising your limit every six months. This $10,000, you come all the way down to $5,000 and they drop it down to $5,050. It’s going to be a slog to get that back up there. Within reason, the higher the limit, the more fundable you are, especially for our entrepreneur clients, our entrepreneurs reading who want business lines of credit or business loans. Strategy number one, during times of stress, you want to talk to the bank before you start lowering that balance through payments.
Strategy number two is never ever make a minimum payment. If you’re making a minimum payment, then you are telling the algorithm, not the banker, that you do not have any money and that’s the best you can do. This is the only time that I like using the word hack. I hate using the word hack with banking because that doesn’t sound good. You hack the algorithm because if you have a minimum payment of $50, make $51, $52, $62, $61, $59, $58. Every month, make a different amount of a payment. This is a pain in the butt especially if you want it on auto pay, “Make the minimum. That’s all I can afford.” It’s great for your budget, but you’re telling the lender through their software, “I can’t afford anything,” and then they’re on high alert. They’re looking for other behaviors that are going to also show that you’re not a viable borrower right now.
They need to watch out for you and keep you in the risk department if you’re above 40% and puts you in the risk department if you’re not implementing the strategy. If you spend too many payments making the minimum. Always in every way you can, you want to pay something close to the minimum so it’s supports your budget, but do not make the minimum payment. If it’s $50, you make $51, $55, $57, $53, $62 for as long as you can. Even if that makes you do it manually, it is worth it. We’re trying to maintain our fundability during these times of stress.
Strategy number three is about budgeting. Your budgets are not going to be online or available to your lender. I’m going to pull this straight out of my bootcamp. You want to audit your books, but you’re auditing for two different things. Strategy number three for financial survival during stressful times, one strategy, two parts to it. The first one is you want to audit all of your expenses. How many times have you subscribed to something? You’re listening to Spotify and then you switched to a different music, Apple, and you subscribe for that 30–day free trial and you forgot about it. You want to pull out your bank statements from whatever accounts or credit card accounts, drafts from your checking account or whatever. You want to audit and go back three months and see what every single expense is and which ones you don’t need.
Let’s say you’re re-employed, everything’s back on track, the automatic deposits from your employer or otherwise or the money that you’re putting into your checking account that is measured by your lender. We’ll get into what balances to have are going to help you in your financial stress, but all that money going in, then there’s money going out. Your bank right now, their software is measuring money in, money out and if there’s not a subtle or slight accumulation. I don’t care if it goes up $100 a month. If there’s not an accumulation in that balance, then that means you’re barely making ends meet. You’re sending that message to the bank.
They’re going to remember it especially if we’re trying to negotiate this, they might look at your checking account. When we looked at strategy number one, they might be looking at your income and watching it slowly grow to even decide whether or not they do that strategy. In this instance, you want to slowly accumulate $50 a month, $100 a month, but make sure that there’s more going in than coming out because the software is measuring that. One way to make sure that there is more in there is by auditing your books.
You go back at least three months and see what automatic deductions are coming out. See what luxury items that you can live without. As we talk about it in the bootcamp, 3, 6, 12 or 24 months, each one of those increments of time contribute more to your fundability. If you can live with more cash and a few luxury items gone and removed from your expenses, that’s going to increase that level of that bank balance level. You’re going to audit for luxury items. You’re going to audit for lost and forgotten items. Those are the two things you’re going to audit for.
This is on my business side, but we had used software and we transferred to another software, a platform, but we were still paying $400 a month. We had it audited. We do it quarterly. There’s a couple of months in there that we forgot to get rid of that other subscription. It happens in our personal as well as our business. You’re auditing for luxury items that you can postpone your gratification or you can get rid of even temporarily to help you increase the balance in your checking account. You’re also auditing for forgotten or software or services that you’re not using.
Our next strategy is we were talking about what happens in your checking account. We needed to increase the balance. I will be as descriptive as I can for those of you who are reading. I want to be as crystal clear as we can. In your checking account, you can’t have a zero balance. You do not under any circumstance. This is a huge way to improve your fundability. Many of you received a check guarantee card associated with that checking account. Now that check guarantee card is a credit line and that credit line, if it’s used and has a balance on it. There’s $300 on that credit line. Remember that gets broadcast to future lenders.
Future lenders are going to see that your check guarantee. Having $300 on your Wells Fargo credit card is no big deal. The $300 on a check guarantee card means you are past zero. We don’t want to be past zero or below zero. That means that this borrower doesn’t have any money. That is an unfundable message. You do not want to be sending that message. If you’re going to carry a balance, carry it on a credit card that is not your check guarantee because that is a huge red flag that you are below zero on your checking account.
We go back to our strategy. How do you account for that balance being raised? You’re cutting out luxuries. You’re getting rid of lost or forgotten debits or auto drafts. What do I mean by building a relationship with your checking account? I’m going to put it here. There’s 1, 2, 4 and 7. These are magic numbers with your bank. They start at this amount at $100, $200, $400 and $700. This is called a bank rating. I always like to call it a depositor rating because these numbers reveal how valuable of a customer you are to your bank? This is what we call average daily balance in a month. Your average daily balance needs to be at least $100 or $200 or $400 or $700.If you're going to carry a balance, carry it on a credit card. Click To Tweet
You don’t get it more algorithm juice by being at $250 and $350 is not more important to the bank than $200. You want to pick these thresholds and you want to slowly move that balance. Your balance goes up and up. The higher you are, the more valuable you are to the lender, but it doesn’t stop at $700. It also means it pops to $1,000, $2,000, $4,000 or $7,000. That’s the next level of value you are to your bank. By hook or by crook, whatever we can do to get your average daily balance to $1,000, $2,000, $4,000 or $7,000 as the average daily balance in your checking account, the sweeter you’re going to be to your bank.
For some of you, it could be what $10,000, $20,000, $40,000 or $70,000. It doesn’t matter, two zeros is the minimum so $100 is the floor, $200, $400, $700, $1, 000, $2,000, $4,000 and $7,000 or $10,000, $20,000, $40,000 or $70,000. The higher it is, the more valuable you are to your lenders. I will reinforce here at these higher amounts, $39,000 is not more valuable than having $20,000 there. You want to hit the $100s, the $1,000s or the $10,000 thresholds for you to be able to establish a more and more valuable relationship. We’re talking about stress so we may be talking even $100 or $200, but I want you to hit those targets. I want you to have a minimum daily balance of at least $100 in there and that becomes the new zero.
What if we call that your new zero? What if $100 is the new zero? Not only are we not using the check guarantee card and sending bad messages there, but we’re also keeping an average daily balance of $100. If I can get you to go to $200, bravo, if I can get you to go to $400, even better still, or into the $1,000s or $10,000s, those will help you build those relationships with the bank. We need every ounce of juice. You’re already depositing checks. If we’re reemployed, you’re already deposit checks. Even if they’re even if they are pension checks you‘re getting because you’re on a fixed income, or if those are unemployment checks, it doesn’t matter what’s being deposited into your account. We want to keep these minimum balance, average daily balances, to add one more set of powerful messages you’re sending your lenders to protect your fundability.
There you got it, amazing strategies that are going to help your checking accounts, credit cards, lower balances without losing your limits. If you were able to implement all of these strategies, your value to a lender is going to skyrocket even during stressful times. The principles are still true even if you’re not in financial stress so use it. If you are in financial stress, my heart goes to you. I pray and wish for your good fortune and good benefit to improve. I want you to take care of yourself and your loved ones in every way you can. If I can provide these simple strategies to help you do that, then I will have done my best by you.
Love the show? Subscribe, rate, review, and share!