For the first time, FICO revealed to CreditCards.com the cost of certain derogatory actions on a person’s credit score. We’ve always known that good credit scores suffer more than bad credit scores for mistakes, but how wide is the divide?
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Scores above 780 will lose:
- 25 to 45 points for a maxed-out card;
- 90 to 110 points for a 30-day late payment;
- 105 to 125 points for a debt settlement;
- 140 to 160 points for a foreclosure; and
- 220 to 240 points for a bankruptcy.
 Compare this to a person with a score of 680, who will lose:
- 10 to 30 points for a maxed-out card;
- 60 to 80 points for a 30-day late payment;
- 45 to 65 points for a debt settlement;
- 85 to 105 points for a foreclosure; and
- 130 to 150 points for a bankruptcy.
You might be thinking: But why do people with higher scores lose more points? Isn’t this unfair?
As I discuss in 7 Steps to a 720 Credit Score: Strategies for Excellent Credit, the credit-scoring models assume that your current performance is a far better indicator of your creditworthiness than your past behavior. You current behavior, after all, better forecasts whether you are experiencing a downward financial turn. For this reason, if you make a late payment on an otherwise spotless credit report, your credit score will probably drop more than if you have been continuously late. This is because a negative change in normal behavior is considered a warning sign of a shift in your financial situation. If making late payments is your standard, the credit-scoring model assumes your financial situation is the same as it has always been and that you will probably make the payment eventually. You will be docked points each time you make a late payment, but the decline will be much more gradual.
Tell me your thoughts about the FICO scoring system… do you think this is at all fair? Comment below!
The credit scoring system has never been fair. Why? Because it does not consider life’s circumstances that may well beyond one’s control. A person who racks up medical bills (and who has maintained good payment history otherwise) gets treated the same way as one who racks up bills to maintain a drug habit.
If you are getting a Loan MOd or working out a deal with the lender under the affordable home program. & the credit bereau’s are showing you delinquent or in foreclosure. A deciscion has not been made by the lender yet, is there anything you can do to improve your score or to remove these premature delinqencies. Thanks
I would attempt (attempt is the optimal word) to negociate a clean payment history upon completion of the loan modification. I have heard this happen one time, so it must be happening below the radar screen. Explain to them the problems you faced, the more detailed explation the better. If that doesn’t work, attend one of my teleseminars and I explain what to do after a loan modificaiton or foreclosure.
Anyone who is reading this – if you want a free login, email Michelle at Michelle@themeg.net, for login info.
Thanks for sharing. What a pesluare to read!
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I should add that I now have no incentive to main punctuality. So just what is their logic?
Steve – I have learned one thing by studying the credit system over the past 12 years, it makes no sense. This is why I’m not going to stop until I get the credit laws changed to be more fair to conusmer.
Please share your frustration with the credit laws here….
http://www.philiptirone.com/category/change-the-credit-laws/
After 43 years of perfect performance, I missed my first mortgage payment. I had never been late on anything. With that first miss, my credit score dropped over 200 points.
I’m a REALTOR who has often wondered about the impact of certain actions on credit scores. This explanation is readibly understood. Thanks for being straightforward.
I’m not certain that fairness is an issue with DICO scores; it seems that negative impacts are to the advantage of lenders. Perhaps that’s the real reason behind all this.
bevW