MASTERING CREDIT

FINANCIAL INDEPENDENCE BY MASTERING CREDIT
By

Dr. Albert J. Lowry

UNLIMITED OPPORTUNITY

Imagine yourself on a giant sailing ship in the middle of the ocean, with no land in sight. It could be a fantastic opportunity, or a complete disaster. You are the master. You are the master of the ship and the master of your fate. If you know what you're doing and where you're going and have a clear plan on how to get there, then there are no limits. You can go anywhere. Do anything. You are limited only by your own imagination.

You can visit the far corners of the world, the riches and Treasures of the Orient, the wonders of the ancient world, the glories and riches of the new world, all available to you. You can be an explorer, Marco Polo visiting strange lands and then writing of your adventures.

You could be Christopher Columbus, discovering a whole new world. Or, you could be a merchant prince, trading the riches of one land, for the wealth of far off exotic places. There's no limit. You are free. Most men and women are restricted, bound by the land. You are not. The world yours, it is open to you
and there's no where you can't go and nothing you can't do.

POTENTIAL DISASTER LIES AHEAD

But, if you don't know how to sail, if you can't cocontrol the ship and steer it in the right direction, then you are lost, adrift in the middle of the ocean with no land in sight. This is a scary thought at best. You could drift forever and never again see land. You would be just another lost sailor, one of many who never found his way home.

Dealing with credit is much the same. Like a sailing ship, credit i the way you don't let a child play with matches, for fear that they can hurt themselves or someone else, you don't play with credit. It is a valuable tool, one that can make your line much richer and more rewarding, but it can also burn your life up and leave it in ruins.

It is up to you. You are the master of your fate and you should be the master of your credit. Sure you could live without credit, but why would you want to? Would you live without fire, just to avoid the possibility of misusing it? Living without credit is almost as bad.

WHY SET ARTIFICIAL LIMITS?

Why restrict yourself to a primitive and ultimately frustrating lifestyle when you don't have to? Why not learn to take advantage of all that modern life has to offer? Why not set your goals and plans carefully and then sail boldly onto the ocean confident that you will reach your destination?

Even if you've had trouble in the past, this doesn't mean that you can't master credit in the future. It does not mean that you can enjoy the finer things in life, the opportunities that are available only to those who know how we use credit productively.

Once you realize what credit can do for you, once you understand its power, then you will wonder why you waited so long to learn all about it. After all, we're talking about the power to change your life, the power to be in control, to be anything and do anything you want to do, just as if you were a rich person.

FREEDOM TO DREAM

Imagine the freedom to make your dreams come true, the freedom to start a successful business that will for you from the drudgery of a job working for someone else. Imagine the security of knowing that money is always available, so you don't have to wake up every day wondering where you will get the money to survive, how you will pay your rent or house payments, how you will put food on the table, how you will build for the future.

Once you understand credit, when you become the master, life takes on a different meaning. You move from survival mode, existing day to day, to progress mode, where you are progressing every day and doing something to make your life better. The constant pressure is off your back and you can breathe. You can think and plan.

TURNING DREAMS TO REALITY

Anyone can dream, but knowing that you have the resources to make those dreams come true is what makes life worthwhile. Mastering credit gives you access to the resources you need to make your dreams come true. No matter how wealthy someone is, with out access to credit, their resources are limited. With access to credit, your resources can be unlimited.

FROM POVERTY TO WEALTH: A PERSONAL JOURNEY

I know, because I don't come from wealth and privilege. I was raised in an orphanage and when I came to this country I didn't even have a job. I thought I did. I was promised a job, but by the time I got here, it had been given to someone else.

Fortunately, I had a valuable skill. I knew how to chop pork chops. I had trained as a butcher and so within a week after my arrival, my wife found a job. She started working in a bank. Eventually, I gave up on the idea of making my living as a butcher and I became a real estate agent instead. I still wasn't getting rich, but at least I had a job.

NEVER SAY YOU CAN'T DO IT

Then, one day a man walked into my office and changed my life. He was an immigrant like me, but he didn't even have my advantages. I had come from Canada and so I spoke English when I got here. I had a trade. This man had come from Czechoslovakia and did not speak English when he got here. He did not even know how to cut pork chops, yet by the time he walked into my office, he was financially independent.

He told me he wanted to buy a piece of investment real estate. That was fine. That was my business. It was how I made my living. I sold real estate and earned commissions. The problem came when this man said that he wanted to buy a piece of real estate without putting any money down.

A LESSON IN POSITIVE THINKING

"You can't do that" I said. "You can buy real estate without putting up any of your own money."

The man just looked at me. "Young man," he said, "you may know how to sell real estate, but you obviously don't know how to buy it."

I was concerned about how I would get paid. How would I get a commission if he was putting up any money? How would I get the seller to accept the deal?

"Young man," he said to me, "don't worry about it. Let me write up the contract and you just present it."

A YEAR'S INCOME IN ONE DEAL

That man wound up buying the property with no money down, just the way he had said he would. The seller wound up getting money, so he was happy. I got my commission, so I was happy. At least I was happy until four months later when that same man came back to my office and wanted to resell the property.

I realized that he was going to make more money in four months from that one property, then I made in a whole year selling properties for commissions. That's when I decided that I would have to learn the secret of using credit, using other people's money to get what I wanted from life.

If he could do it, then I knew that I could too. It was just a matter of acquiring the knowledge to take control of my life and my financing. I learned to do that and I never looked back.

A CREDIT TO THE COMMUNITY

With the knowledge I acquired, I leveraged my credit until I became the largest single owner of government subsidized housing in Oakland California and a multimillionaire. Eventually, I began sharing my knowledge with other people, teaching them to duplicate my success.

A BANKRUPT BUYER GETS A NEW HOME

One day, a friend came to me. He was a well known financial guru, a man who knew how to handle money and credit, but who had fallen on some personal hard times. He had been forced to file bankruptcy. Now his family needed a place to live. I showed him how to buy a house instead of renting. I showed him how to buy the house with no money down. The fact that he had filed bankruptcy, did not stop him. It doesn't have to stop you either.

A few years later, I was forced to file bankruptcy myself. I was in the midst of building and development at Lake Tahoe Nevada, when the federal government suddenly declared a moratorium on building and wiped me out. This was nothing that I could have foreseen or prevented. I was stuck.

However, I refused to let it hold me down. I fought my way back and today I'm a multimillionaire again. I teach classes all over the country showing people how to become financially independent. Many of my students have gone on to become rich and successful beyond their dreams.

CHANGING YOUR LIFE

Will this happen to you? Will this book help you fulfill your dreams? Only you can answer that question. This book can supply the knowledge. It is up to you to decide what to do with it.

will show you how you use credit as a tool, a tool which can help you build a solid foundation your life, for your future. I will show you the possibilities, as well as the pitfalls and how to steer around them. After that, how you use credit is up to you.

Will you use it intelligently? Will you use it to assure your own future, or to jeopardize that? With you waste your credit buying frivolous things that you really can't afford and don't need, or will you use your credit to improve your life? Only you can decide.

ESTABLISH YOURSELF IN BUSINESS

Will you use credit to establish yourself in business? This is one of the smarter things that you can do, especially assuming that you have an interest in business and that lack of money is the main thing holding you back. You don't even have to have a business of your own, or even a business idea. All you need to do is find business people who need credit and you can put yourself in line for some incredible opportunities.

To give you a quick example, a few years ago, I was approached by a businessman we'll call Mr. X. Mr. X had a successful business that we will call the X-ray Corporation, but Mr. X had a temporary cash flow problem. His business was expanding and he needed cash. He didn't have that. He had assets and a thriving business, but he was caught in a cash bind.

A PARTNERSHIP AT NO COST

Mr. X approached me about investing in his business. He offered me a share of the business if I would come up with the cash that he needed. He wanted me to be his partner. All I had to do, was come up with $100,000.00 in cash and I would own half his business.

I did some checking and decided that I would not mind owning half of X-Ray Corporation. It was a solid company with a good future, assuming that Mr. X could get the cash he needed. The only problem was, that I did not have $100,000.00 in liquid cash handy at that time. Most of my money was tied up in real estate, which I consider to be the best investment I know.

Yet here I was, presented with an opportunity which seemed attractive. Therefore, the problem was to come up with a hundred thousand dollars in cash without having to liquidate any of my other investments. If I could do that, I felt that I could make good profit, in addition to helping Mr. X solve his problem.

YOU DON'T HAVE TO OWN MONEY TO USE IT

I drew up an agreement stating that I would give Mr. X $100,000.00 as a loan in exchange for my share of his company. The agreement never said that I would loan Mr. X my money. It just said that I would make $100,000.00 available to him as a loan.

Now, of course, this meant I was taking a risk. If Mr. X and the X-Ray Corporation did not pay back the loan, then I would be responsible. In theory, I could be liable for $100,000.00. However, I had done my research and so I was confident Mr. X would repay the loan.

I had an agreement drawn up, giving me half interest in the X-ray Corporation in exchange for a $100,000.00 loan. The agreement spelled out all the loan terms and specified that Mr. X and the X-ray Corporation would be responsible for the payments. I fulfilled my part of the bargain just by making the money available. It wasn't my money, but Mr. X never would have been able to get the money without me and so he didn't care whether it was my money or not.

BANKERS ARE JUST SHREWD BORROWERS

The best part, is that it wasn't the bankers money either. The bank had borrowed the money just like I did. This is the secret of banks. They make money using other people's money. They borrow money from their depositors at a very low interest rate and loan it out to businesspeople and would be homeowners at a higher rate.

Banks also borrow money from each other and from the federal government, from the Federal Reserve System and they use this money to make more money by loaning it out at a higher rate. Our whole banking system runs on credit. If bankers had to use their own money there would not be much money to lend. The bankers would not make much money and most businesses would not be able to function.

This is what banks really do, they take money from those who have it and recycle that money to those who need it, for a fee. In fact this is where I got the idea for helping Mr. X. If bankers could make money loading out other people's money, then why couldn't I? The only difference was, that instead of borrowing the money from the bank at a low interest rate and then reloaning it to Mr. X at a higher interest rate, I took a piece of his business instead.

The bank made money on the loan and developed a new customer. I became a partner in a growing and successful business without putting up any money of my own and profited from my knowledge of credit and how to use it.

KNOWLEDGE, NOT GENIUS

Am I a financial genius? No. I am just a person who has taken the time to learn about credit, to understand how the financial system works and how to use it to my advantage. There's no reason why you can't do exactly the same thing. That's what this book is all about. Later I will explain in detail, how I arranged the loan without tying up any of my own assets.

This book is designed to teach you to be the master of the good ship credit, to learn to sail it across the financial oceans and take yourself any place you want to go. You can develop a successful business, like my friend Mr. X, or you can build a fortune in real estate, or international trade, or even become a banker, making money with other people's money. The opportunities are all there. All you have to do, is learn to take advantage of them.

WHAT DO YOU WANT TO ACCOMPLISH?

Think of yourself out of the ocean with no land in sight, just you and the good ship credit. You are the master, the master of the ship, the master of your fate. What is the purpose of your voyage? What do you hope to accomplish? What will make your voyage a success? What will make it easier? What will help you to be more successful?

If you're sailing for sport, to prove your manhood and challenge yourself, then you might want to sell alone. No doubt this would be exciting and a real test of your ability as a sailor. It would be an adventure to tell your grandchildren about some day, if you survive.

However, if you are sailing with a practical goal in mind, a definite plan of where you want to go, why you want to go there and how you plan to get there, then the chances are, that you won't want to sail alone. You will want to take a crew with you, a crew of experienced sailors, experts at their individual jobs, because they will help you reach your goals, a lot sooner and easier than you could do it on your own.

CREDIT IS A TEAM SPORT

It is the same thing when you're trying to build your credit and use it to get ahead in life. In fact, team building, establishing relationships with those who can help you, is what credit is all about. Credit is trust. Credit is having a reputation for being trustworthy and meeting your obligations. If you are credit worthy, it means that people can trust you to pay what you owe.

Having a team of bankers, loan agents, financial advisors, etc. who know you and will work on your behalf is essential. Building credit is a team sport. It's not something you can effectively do on your own. But before we even get into building your team, let's look at what credit is all about and why and how it makes the world go around.

CREDIT HAS BEEN AROUND FOREVER

Credit has always been with us. It is not a new invention. It is not something that modern society invented. It has been around forever, long before money was invented. Long before there were banks, or other formal credit agencies. Everyone uses credit, even people in primitive societies.

Think about it. We use credit all the time, in all sorts of informal ways. Have you ever asked anyone for favor and then said "I owe you one"? You have just established credit. Whoever did you that favor, however slight it was, considers you trustworthy. They're trusting that you will pay the favor back if they ever need it.

If they did not believe that you are trustworthy and that they could count on you for a favor, then the chances are, that they would not be willing to do any favors for you. We don't generally do favors for people we don't like or trust.

So, just the fact that someone is willing to do you a slight favor, means that you have already established credit with them. Now, you just have to move on to bigger and better things, to establishing credit with people who can loan the money that you need to better your life.

CREDIT IN PRIMITIVE SOCIETIES

he same principle applies to people and primitive societies that don't even use money. One hunter will go out and have a very good hunt. He will bring back more food than his family can use and he will share the extra food with other members of the tribe. Although he does not necessarily say this, he is counting on them to share their hunts with him and his family in the future.

This is a simple form of credit. I do something for you today and it is understood that you will do something for me at some time in the future. It is built on mutual trust. There is an unspoken understanding which governs this type of transaction. That unspoken understanding is just as binding as a written contract in our society.

CREDIT LED TO WRITTEN CONTRACTS

In fact, written contracts and writing itself, came into being as a way of keeping track of credit. Merchants and traders invented writing as a way of keeping records, to show what goods and services they traded with each other. This way, they could keep score, they could know exactly who had provided what and arrange for proper payment of goods or services at an appropriate time.

For example, merchants would travel by caravan, from one place to another, carrying valuable goods for barter. They would collect goods that were common in one place and take them to someplace far away where they were uncommon and therefore valuable. They would trade these valuable goods, for goods that were commonplace in the far off lands, but very rare and valuable in their homelands.

BUY LOW, SELL HIGH

In this way, adventurous merchants could make a profit on both ends. They profited by following the old maxim: "Buy low and sell high". The only problem, was that mounting caravans was expensive and dangerous. If a merchant had to pay for all his goods in advance, he had to be a wealthy man. Plus, he had to pay the expense of the caravan itself.

He had to pay for camels or horses and men to travel with them. He had to pay for food and other supplies to last during the trip, as well as protection from bandits and wild animals. All in all, it could be quite an expensive proposition, one that only the wealthy could afford.

But sooner or later, someone came along who was not quite so wealthy, but had a lot of imagination and a sense of adventure. Instead of buying all the goods that he needed to take on the caravan, this person came up with a better idea. Why not get the farmers, artisans, and others who produced the goods he needed, to give them to him now, in exchange for a higher price later, when the caravan had successfully returned with riches from overseas?

BUY NOW, PAY (MORE) LATER

For example, let's say a merchant named John wanted to start a caravan to trade grain from his native region for spices from some far off land. If John paid for the grain in advance, he would have to give the farmers one quarter bucket of spices for each bin of grain. He only has 2.5 buckets of spice, so he would only have enough spices to pay for ten bins of grain.

However, he has enough horses and camels to carry 20 large bins of grain. For each bin of grain, he will get ten buckets of spices when he reaches his destination. Grain is very valuable there, just as spices are in John's homeland, so the more grain John can carry with him, the more profit he can make.

MORE PROFIT FOR EVERYONE

Therefore, John comes up with an idea. He goes out to talk to the farmers and he tells them that he can pay them one quarter bucket of spices for each large container of grain now, or he can give them a half bucket of spices for each container of grain, when he gets back from his trip.

This way, the farmers can earn twice as much for their grain. John will be paying twice as much, but he will still be paying only 1/2 bucket of spices, for a container of grain, while he will sell it for ten buckets of spices.

If he pays the farmers in advance, he will pay 2.5 buckets of spices for 10 bins of grain, which he can sell for 100 buckets of spices. He will have 97.5 buckets of spices left to pay for the cost of the caravan and keep what's left.

If he pays the farmers when he returns from his trip, he will pay 10 buckets of spices out of a total of 200 buckets of spice he will receive for 20 bins of grain. He will have 190 buckets of spices left to pay his expenses and will make almost twice as much profit. The farmers also make twice as much profit this way.

It is a good arrangement for John and a good arrangement for the farmers too, but only as long as they trust John and believe that they will get paid in the end. This is what credit is all about. This is how it got started, before money was even invented.

A LEVER BIG ENOUGH TO MOVE THE WORLD

It comes down to the simple principle of using leverage. You can do only so much using your own strength. You can move rocks of a certain size, but larger rocks will prove impossible to move, unless you use a lever, a simple tool, yet a very powerful one. A very famous Greek mathematician named Archimedes once theorized that with a large enough lever, he could move the entire world.

Credit is your financial lever. It allows you to move boulders, even mountains. You can do far more with the help of others, than you could ever do on your own. The art of mastering credit, is just the art of getting other people to help you succeed financially.

MONEY MADE CREDIT EASIER

Once money was invented, it made life easier. It made the development of credit easy. Now, people no longer had to deal strictly in barter, trading bulky goods which were difficult to transport and weren't always useful to everyone. Now they could deal in currency or coins, symbolic wealth.

Money itself is a form of credit. The fact that we accept the money instead of goods and services, shows that we have faith in who ever issued that money. When people began to use money, it showed that they had faith in the king, or the emperor, or whoever the local ruler was. They had faith that the government would survive and that the money the government issued would be worth something in the future.

GIVING THE GOVERNMENT CREDIT

In effect, this meant they were giving the government credit, giving up their goods or services in exchange for currency issued by the government, which is really nothing more than a promise that the government will make the currency good.

This was a big leap of faith. Now, merchants, farmers and others no longer had tangible goods to show for their goods or services. All they had, was a symbol of wealth and a promise that they could always exchange the symbol for real goods and services. People took this giant step, because it made life easier. It made it easier to do business and meant that trade and commerce could expand.

THE START OF BANKING

The next step, was the start of simple banking. For example, let's say that our merchant John, wanted to make a one way trip to sell his grain. John found somewhere to sell grain at a very high price, but the people there had nothing that John's people wanted in return. They only produced furs and John's people did not wear fur.

The only way John could make the trip worth while, was to stop somewhere else along the way and train the furs for something people back home wanted. Sometimes this can be very profitable and practical. Other times it was not. Therefore, people needed a way to conduct one-way trade, where there was no direct exchange of goods.

As long as John could exchange his grain for money, it did not matter if the buyers produced anything people back home wanted, because people back home would accept money instead. But John still had to have money to run his caravan business, to pay for the grain, the camels and horses, the men and supplies he needed. The more money John could get his hands on the more money he could make.

BORROWING MONEY

If John could find someone in the community who had more money than they need it for their own use and persuade them to let him use some of that money, he could make more profit. Even if he had to share the profit, with the person he bought the money from, John would still come out ahead, just the way he did when he persuaded the farmers to give him their grain on credit.

The person who loaned John the money also came out ahead. He got to make money without any work, just by putting his money to work. If the money was sitting there not being used anyway, then John did him a favor. Everybody won.

CREDIT HELPED REDUCE RISK

There was only one problem with this arrangement. Carrying money on long journeys was dangerous. Robbers and highway men waited for travelers. Danger lurked at every turn. But then, an enterprising group of business people got together with other groups of business people in other lands and created a new business.

Someone like John, could sell his grain, give the money to one of these new businessman and get a piece of paper guaranteeing payment when he got home. The businessman John gave his money to had developed contacts with other businessmen in John's homeland. They would honor the piece of paper that John carried and give John has money, minus a fee which they charged for the service.

The businessman in John's own land would assume that sooner or later, a trader would come to him and give him an equivalent amount of money in exchange for a piece of paper guaranteeing payment by the other businessman, the one that took John's money. if the account did not balance out naturally, then periodically the two businessmen would settle their accounts.

This is another form of credit. In many parts of Asia, Africa and the Middle East, this is still the main method used to transfer money. In many countries, they still don't have a banking system like ours and or many people don't trust banks. it's an ancient form of credit which still works.

LOANING BORROWED MONEY: THE NEXT LOGICAL STEP

It probably was not too long before someone came up with the idea of being a middleman and making money with borrowed money. If someone was well respected and trusted in the community, they could go to those with extra money sitting around and borrow it, at say 10 percent interest per year, particularly if they could convince people that they could keep the money safe from robbers, perhaps better than people could do it on their own.

Then, they could turn around and loan that same money to merchants like John, who might not have been as well-connected, for 15 or 20 percent per year and make a profit on the difference. This is really all that bankers do today.

So you can see, that credit has been around forever. It started long before modern society, long before consumerism became popular and people started charging everything in sight. Credit was originally a way of making business easier, so let's start off talking about how to use credit to get started in business.

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