Manage Your Intangible Assets

You work hard to protect your financial future. You keep an eye on your bank statement, investments, tax returns and 401K. You maintain and protect your house and car.

But there are two important intangible assets you might have overlooked — your credit and your identity. These two assets may not appear on a personal balance sheet, but they drive your ability to obtain and keep your physical assets. They provide the framework for achieving your dreams whether they include starting a small business, buying a vacation home or paying for your child's college education.

Just as you would review the performance of your investment portfolio, you should monitor your credit file on a regular basis. Here are some questions to consider during your regular reviews that will help you evaluate your credit history the way lenders do.

1. Is your debt utilization ratio too high? To calculate your debt utilization ratio, divide account balances by the sum of the credit limits, excluding mortgage debt. In general, the lower your debt utilization, the better; keeping it below 25 percent is preferable. If your ratio is too high, it's better to pay down debt rather than to add new credit lines.
    
2. Have you opened several new credit accounts in the recent past? You might not keep track of how many new retail credit cards you've opened to earn discounts on your initial purchase. Then you sign up for a pre-approved credit card that had a great rewards program. Before you realize it, you've added a handful of accounts to your credit file and changed your profile dramatically. Lenders become concerned about the potential for you to add on significantly more debt. If you have opened a lot of credit recently, consider waiting six months to a year before applying for more credit.
    
3. Is your track record long enough? Lenders like to see that you have managed credit well over a long period of time. Sometimes people close older accounts to reduce the total number of accounts on file; this tactic can actually make you look less attractive to lenders. You could also make your credit history look less established by jumping from card to card to take advantage of balance transfer offers and closing the original accounts.
    
4. How much is your total debt? Even if you pay your credit card balances off monthly, the balance amounts are reported to your credit file. Check the Credit Summary section of your credit report for the total balance amount. Total debt is factored into your credit score and some credit grantors - particularly mortgage lenders - are likely to consider it in combination with your income.
    
5. What are your payment habits? The single most important factor lenders consider is whether you pay your bills on time. Check to make sure your credit report accurately reflects your payment history. If you have any delinquent accounts, bring them current as soon as you can.