Many of our clients work in venture capital and early stage private equity projects, so we are almost always working with people that are very comfortable raising capital. This is an important point, because the term 'credit utilization' can be off-putting to another demographic of clientele. Generally speaking, a willingness to take on debt financing demonstrates a level of risk tolerance, as long as it is structured favorably, and we are never taking on bad debt! Put another way, the ongoing discussions about credit utilization are about creating a robust profile for every client. The more we learn about the clients, the better we can customize and tailor our approach. The comprehensive financial planning practice must always take into account the whole person, their family, business interests, with a holistic approach, and with sufficient considerations to their unique circumstances as well as specific preferences. As to managing the investments, it should also be stated that when there is risk in one segment of the portfolio, this must be balanced and diversified in other segments. Achieving a high return is great of course, but only if doing so on an appropriate risk adjusted basis!
There was this one time, I helped a client who had notoriously high credit utilization, it redefined what my philosophy on portfolio management for clients like him should be. They had a utilization ratio above 70%, something that was dragging their credit score down significantly and at the same time leaving limited flexibility for further financial manoeuvre. I started by getting them focused on attacking the high-interest debt to get their utilization amount under 30%, which is a real sweet spot for credit score improvement. I learned that it is extremely crucial to match portfolio strategies based on a client's credit profile. So we skipped the new loans through the payoff period and instead stashed our cash like squirrels preparing for winter to make sure we never reached our credit limit again. When their debt usage was in check, I guided them through the process of using their better credit score to refinance their mortgage and reduce monthly payment so they could use that capital to invest for the future. Credit Utilization is more than debt It reflects a client's balance between financial risk and reward, and therefore provides insight into their broader lifestyle choices. I so often conduct these credit reviews as part of my portfolio strategies now that we uncover new opportunities, assess risk and redefine what better tools my clients can evolve into. This is because it takes credit management and ties it in with other financial objectives to become 1 complete cohesive plan.