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September 4, 2018

Good Credit Managers: What They Have in Common

When you apply for important loans, lenders usually refer to your credit score to see whether or not you’re worth the risk. Of course, higher scores mean more chances of the loan application getting approved.

But what specifically does the credit score tell the lenders? In a nutshell, the score paints what type of a credit manager you are. Different lenders have varying thresholds for who is considered good and who is considered a bad manager. But you will definitely be assessed in five domains, and your performance in each will affect the attractiveness of your overall picture. 

So, what are the domain-specific characteristics of good credit managers? 

They deliver on time

Time is the most important resource that a manager can manage. Truly, no one can claim that they are good managers if they can’t even beat deadlines or follow schedules. A good manager of credit, therefore, is expected to pay on time. Occasional delays may be tolerated, but never systematic ones. If you want to be a good credit manager, then timeliness is indeed the first thing that you should master. 

They don’t live off their debts

Credit limits are backups to a person’s income. They provide a safety net in case there are unforeseen changes and delays in one’s usual finances. They can also serve as a cash advance mechanism so that the person can purchase useful items at an earlier date. A good manager of credit understands this and does not act as if the limit serves as extra income. They limit usage to at most 30%.

Some argue that their use of more than 50% of their limits should not be an issue if they are able to pay on time. Lenders, however, beg to disagree. Functioning on debt is risky — it unwittingly turns a person into a time bomb just waiting to explode into a financial mess. 

They’re experienced

Managers who are experienced are more valuable than those who are just starting. For sure, the latter will still have a lot to learn while the former can be assumed to already have a lot to share. 

They’re a bit diversified

Without prejudice to the previous points, a good manager is also experienced in handling a variety of credit. Some may even have experiences with loans that do not require credit inquiries, although these types of loans do not have any bearing on the credit score. Good credit managers very well know how to get a loan with no credit, but they do not abuse this privilege.

Going back, we can consider a house loan and some occasional credit card spending as a healthy mix. Lenders see this combination as valid proof of the manager’s ability to calculate and schedule payments well. 

They plan well so debts don’t fund their major spending

Quite related to the point immediately before this one, good managers have the ability to plan well. Yes, they apply for one or two major loans, but they rarely ever go beyond that. Paying off a major loan is already a huge liability, and they understand that. They don’t force things, and they make their purchases at the perfect times. 

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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