Continuous Process Improvement: Kaizen for personal finance

Your credit report feeds your FICO Score: Garbage In = Garbage Out. First in a series explaining how to improve both your credit report and score.

House with Dollar sign.
Financial planning begins at home. (Image via Wikipedia)

WASHINGTON, July 8, 2015 – The concept of Kaizen (kai = change; zen = good) was first put to use in the Japanese work world. Roughly translated as “continuous process improvement,” this key element in a competitive business strategy got increasing attention in the United States in 1986 with the publication here of Masaaki Imai’s book entitled “Kaizen: The Key to Japan’s Competitive Success.”

In numerous large U.S. corporations, kaizen has been integrated into corporate management style, approach and policy, but with mixed success.

Fortunately for us, kaizen is easy to apply to personal finance. But why would it work for us and not for some large corporations? Answer: Because we have control.

The difference between Credit Scores and Credit Reports

Your credit report is most easily defined as a comprehensive, organized list of the information currently in your credit file. In effect, it’s the end result of answers that you provide on the tests and quizzes you take while taking the personal finance course in the School of Life.

Your credit score, also known as a FICO score, is like an interim grade you get from your professor. It changes from time to time depending upon how you and your finances perform.

Sometimes your professor’s inattentive or bored graduate assistant gets your interim grade wrong by mismarking or even ignoring the results of your tests and quizzes. This is not your fault, of course. But you get penalized anyway, and the graduate assistant may even try to blow off your objections. (That’s something that actually happened to me.)

But you still want a fair grade. So you gather your evidence for your case and go above the grad assistant’s pay grade to get the impasse resolved, hopefully improving your grade. The same procedure applies to the way you deal with your credit score.

Empower yourself by improving your credit

Credit repair and credit improvement are two different things.

Credit repair becomes a necessity if you’re experiencing problems with your credit. It’s similar to a situation in college that might occur if I hadn’t studied, didn’t turn in papers, and had to ask for an extension to complete or improve my work.

Fixing or repairing a similar situation in personal finance – credit improvement – means that you have completed all the work to bring things up to date, can produce the documentation to prove it, and, if necessary, can argue your points from a solid foundation. If your actions and arguments are accepted, your credit scores and reports will improve.

Lesson from Life School: New, improved and more relaxed rules for the government’s current Home Affordable Refinance Program (H.A.R.P.) can make this program an attractive option for homeowner’s who have been stuck with a high-rate mortgage for years.

If you’re reasonably sure you can refinance your old mortgage or even take out a new one, the best way to start is to tune up or improve your credit score. That puts you in a better position to maximize the value of the deal you’re going for with the bank. Once you have a great credit score, you can stop being a suppliant to finance institutions and can start leveraging the situation to your own advantage.

Operating from a position of credit strength, you can ask your loan officer, “Is that the best you can do?” Then stop talking and wait for an answer. See if you’re happy with it. Remember, there’s no real pressure here. You can always walk away. Pull the emotion out of it. Be polite but deliberate.

You obviously can afford to pay what you’re already paying, since you already are. After all, we’ve been hearing about rate volatility since the beginning of the Great Recession. It’s old news.

The most effective strategy in all things financial is to take your time, explore your options, and ask for a better deal. And one of the best ways to put yourself in the driver’s seat is to be aware of your credit score as well as they ways you can improve it

Next up: credit scores and reports and how to improve them.

Frances S. Ponick of Leadership English LLC coaches individuals who want both control and opportunity in their lives. Learn more about Fran on LinkedIn.

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