The Bigger They Are The Harder They Fall

Credit scores and credit scoring models have long been scrutinized for being so secretive about how negative credit actions will specifically impact a person’s credit score.  It sometimes feels like playing a game without knowing all of the rules.  We know that making late payments on a credit card will lower our score, but until just recently we’ve not known by how much.

This chart recently release by FICO, the scoring model primarily used in the lending industry, helps us to better understand the consequences of our credit decisions.  A FICO score ranges from 300 to 850.

The “credit card settlement” refers to a lender agreeing to accept less than is owed on the account.  This wouldn’t usually happen unless a borrower was behind on the debt so a 30-day late payment was also included when calculating the score impact for the borrower who started with the 780 score.  These score impacts are still given with a range because every person’s credit profile differs.  If you’d like to read more specifics about these two credit profiles you can see them at FICO’s website here.

We can see that a credit mistake impacts someone with excellent credit more than someone with average credit.  It is also good to remember that these score changes reflect what would happen to a score immediately, over time without any other credit mistakes, the negative impact on the score would lessen.

Up until just recently a 680 score was generally the benchmark for access to the best mortgage rates.  A 740 FICO is the new benchmark for the best rates.  Along with better rates, having a 740 score is also rewarded with access to loan programs that are unavailable to borrowers with lower scores.

Our credit scores are impacting the loans we qualify for and rates at which we can borrow more than ever.  With an increasing access to our credit scores and the calculations behind them, we have a greater responsibility to be educated and diligent about maintaining a high-quality credit profile.  If you haven’t recently, you should access your free credit report at www.annualcreditreport.com and as always if you have any credit questions we are here to help.

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