Quantifying Credit Score Killers

Liz Pulliam Weston managed to get actual numbers from Fair Isaac, the creator of the FICO score.

For someone with a 780 credit score, which is a good credit score, the impact of “negative events” is far greater (double in some cases) than on someone with a 680 score, which is still a fairly decent score. This is not a surprise, but this list should be – it’s the first time hard numbers, albeit ranges, have been associated with negative events.

Effect on a 780 credit score:
– Maxed-out card: -25 to -45
– 30-day late payment: -90 to -110
– Debt settlement: -105 to -125
– Foreclosure: -140 to -160
– Bankruptcy: -220 to -240

Effect on a 680 credit score:
– Maxed-out card: -10 to -30
– 30-day late payment: -60 to -80
– Debt settlement: -45 to -65
– Foreclosure: -85 to -105
– Bankruptcy: -130 to -150

They made some broad assumptions about the example individuals but overall it’s enlightening to understand the quantitative impact of these events.

Jim writes about personal finance at Bargaineering.com.

(Photo: armydre2008)

Comments

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  1. Megladon says:

    Thx for credit on this when i sent in a tip on this a week ago when this was posted on yahoo.

    • Verucalise (Est.February2008) says:

      Thank you, Megladon.

    • katstermonster says:

      As you’ll notice, this is written by Bargaineering.com, not by an editor. I assume that this means they are some sort of featured group. They’ve written some article in the past. I strongly suspect that they do not draw from the tips at all, so they probably have no idea that anyone put this tip out there.

      Also, you need to remember that the editors are humans, just like us. Your tip may or may not get published because of which editor sees it, what time of day it is, what mood they’re in…etc. Good, bad, or indifferent, it’s a fact of life.

  2. zacox says:

    This would be a great thing, except there are so many more possibilities.

    What is the effect of a 60-day late? 90 day? 120 day? Rolling 90 or 120? Collection? Judgment? Lien?

    How does the effect wear off? In other words, a 30-day late will ding 80 points now, but a year from now how much does that single 30-day hurt you?

    • Verucalise (Est.February2008) says:

      Pretty sure if you hit anything above 60 days late… then you are in a situation where your credit score is the last thing on your mind.

      • nsv says:

        Not true. I’m well over a year late on several medical bills for a workers compensation case. Risk management arbitrarily selected a few bills they won’t pay, even though all visits were approved. I’m damn worried about my credit score.

        • Stephmo says:

          Medical bills are a whole different classification – and one that gets scored very differently. As in very much on the wrist-slapping side. Most automated systems allow lenders to completely ignore medical bill delinquencies.

          Believe it or not, most lenders hate that medical delinquencies are reported like that – because unlike a debt for a good where you woke up one day and said, “I want a new shiny thing,” a medical bill is typically not your choice.

    • FDCPAGuy says:

      a single 1×30 will have an impact for a few years. Multiple 30 day lates are another story. 60s, 90s, charge off are considered a serious delinquency and will keep the scores lower for as long as they are on the report.

    • Stephmo says:

      Your score is a constantly moving target. But, the reality is that 30-days late is really bad when it’s CURRENTLY 30 days late. After you’re current, then it moves over to the MINOR DEROG pile (60 days is MAJOR DEROG). Those aren’t anywhere near as bad, but then it becomes a ratio (from what I was able to discern from back in my reviewing days). So then it’s a matter of what percentage of accounts does that 30 days make? If that 1 30 day late was on 1 of 3 accounts vs. 1 of 30 accounts, that will make all the difference.

      As far as “how long” – every month it passes, the better. For the most part, anyone can see an account for up to 7 years, but the bureaus only show the last 24 months of payment activity IF the lender sends it over in their monthly reporting.

      So, best case-scenario on a 30 day late? Life sucks that first month you’re late, but it’s on 1 out of a lot of accounts – so you get caught up. And then it’s a blip for the next two years that most everyone on the planet reviewing credit will ignore because anyone can be late once. Don’t go twice – that gets icky. Especially on the same account.

  3. FDCPAGuy says:

    This information is somewhat useful but it doesn’t take into account different FICO scorecards: http://www.creditmattersblog.com/2008/08/fico-scorecards-where-do-you-rank.html

    Sadly the FICO algorithm is much more complicated than these examples make it out to be. Honestly, it’s not meant to be transparent/easy to understand for consumers. Consumers are not the customers of Fair Isaac, lenders are.

    • Bohemian says:

      But we are defacto victims of FICO since it is now used to determine everything from a job to insurance to credit interest rates. If it was just for the extension of credit it would be less of a big deal. It became something else when it started being used to judge other things. When some used car salesman can look at a person’s credit score to determine how they are going to manipulate them for maximum profit the system is already pretty screwed up.

      What is really needed is not just details about what certain negative events will do but info about what positive actions will do what in certain circumstances. If I thought opening one of those stupid store credit cards would raise my score right before we go to negotiate for another auto loan I would certainly do so. That is the kind of information I want so we as consumers stand a chance to have some control over the situation.

      • FDCPAGuy says:

        What you speak of is easy to do… all one needs to do is understand score factors. On any lenders credit report under the score for each bureau will be 4 factors which are in order of impact on the FICO from most to least. So for instance if any of the 4 are ‘Lack of recent revolving account information’ opening up a new card, keeping a low balance, and letting it hit the report will increase the score. Otherwise a new card will not help or hurt the score. If you’re like most people one of the top 2 reasons will be ‘Proportion of revolving balances to limits’ meaning paying down cards will help the score.

        I do this sort of manipulation to reports all day :)

  4. H3ion says:

    Does size matter; that is, a maxed out card with a $1,000 limit is one thing. A maxed out card with a $30,000 limit is something else. Does Fair Isaac differentiate?

    • Verucalise (Est.February2008) says:

      Unfortunately, there are so many answers we will probably never get or understand. I just hang on to the theory that if pay my bills on time, even if I were to be a little over extended or not utilizing my credit… hopefully, things will work themselves out over time. My credit still isn’t the best, but it went from 550 (post divorce) to 660 now just holding on to those basics.

      Like they say over and over… unless you have a huge purchase like a house or vehicle in the future, then a couple dings will smooth over in time.

      • katstermonster says:

        Agreed. I was freaking out last month because I missed my credit card payment date by one day (I forgot that it’s a 30-day cycle instead of a month cycle, so it moves around….d’oh. I’ve since added an email reminder.) But then I remember that I’ve had this card for 4 years, I’ve never maxed it out or been late on a payment before, I’ve made all my car payments on time forever and ever, and I’m just generally responsible. And then I stopped worrying.

    • diasdiem says:

      Yes. The formula is simple: Take your credit limit, subtract the number of days until the next vernal equinox times the last two digits of the current year, and divide it all by the number of licks it takes to get to the Tootsie Roll center of a Tootsie Pop. This number is the effect on your FICO score. Also, if you take the name of your first pet and combine it with the street you grew up on, you will get you Porn Star name.

      • katstermonster says:

        Hahaha this made my day about a thousand times better. Thank you.

      • catastrophegirl chooses not to fly says:

        the numbers of licks it takes to get to the center of a tootsie roll tootsie pop is somewhat variable.
        for me, it averages out to about 1400 licks to get ALL the hard candy off the tootsie roll center. but what if someone has a larger or smaller tongue?

        are we using an average of the number of licks to get TO the center or to remove all the candy coating? is it based on the number of licks the borrower would have or on the number of licks average across the whole population?

        man, this makes my head spin

    • Stephmo says:

      An individual maxed out credit card is an individual maxed out credit card – but then there’s the overall revolving burden. Which can really offset the whole thing. But I can remember seeing a small maxed-out card jack up someone’s score.

      It’s confusing. Supposedly, this was something that was being addressed when the whole “authorized user” scam was being shut down the other year – and I haven’t really been reviewing credit since that adjustment last year – and with the credit card companies dumping limits this year…one would hope.

  5. Kerov says:

    This recent obsession with “credit scores” is pathological.

    Unless your credit score is so good that you don’t need to obsess about it, you have no business even thinking about getting credit. It’s like using a Breathalyzer™ at the bar to see if you can, technically, drive home legally.

    For the vast majority of people, internalizing the motto “pay cash or do without” would vastly improve their lives.

    • Cant_stop_the_rock says:

      You’ve just created a catch-22, because in order to have a good credit score you first have to obtain credit.

      For some people “pay cash or do without” would improve their lives; some of us use credit as a tool.

    • Letsgohokies says:

      Yes, it would be a good motto for most people but I doubt most people could afford to pay cash for say a house.

    • AK47 - Now with longer screen name! says:

      Agreed. Some people need to quit living in that strange worship/fear relationship with their credit score, and start saving up for the things they want. If you can’t pay for it, you can’t afford it! Your car included.

      And yes, you can still get a home loan with no credit – – having no credit is very different than having bad credit. Mortgage companies who still use common sense will write the loan, because they’re smart enough to know you actually have money, since you’re not sending it all to the credit cards.

  6. GadgetsAlwaysFit says:

    I wish they would have included the deduct range for hard inquiries. I would really like to know how they weight those, and why. I can’t see that it matters if you are ‘thinking’ about utilizing credit versus actually utilizing it so the deducts against the FICO score for that one seem extremely unfair. I read in postings to the original article that 2 hard inquiries in a 2 year period result in a deduct against FICO score. That doesn’t seem like an excessive number of hard inquiries for the time frame.

    • Stephmo says:

      Hard inquiries are about 9 points – with major IFs.

      Let’s say you’re shopping for a car – here’s the deal – DON’T freak out about anyone shopping around your credit or multiple inquires IF you do everything in short order – like 48-hours. The bureaus basically look at all similar inquires (i.e. auto finance) in that period of time as ONE inquiry. Because they know that a smart person is going to a) shop around & b) that auto dealers will shot gun you.

      BUT, if you insist on dragging out the process and letting anyone and everyone look at your credit for weeks, this will start to hurt you. ONLY let someone check your credit when you’re ready to sign a contract.

      In fact, NEVER EVER authorize anyone to pull your credit unless you’re serious (really serious) about purchasing the car, credit, home or fur coat. Because “just checking” is a fool’s game. You’re not going to “win” anything by dragging out the process for a few weeks and you’re the one that will really suffer in the end.

      The reality is that a one or two types of inquires a year is pretty normal. No one freaks out looking at a bureau that sees a dozen or so from the last several years. It is the people that show a ton that you worry about – because they’re either signing up for everything or they leave their information out and about and everyone on the planet signs up for them. Either way, it’s a risky move on your part as a lender.

      • catastrophegirl chooses not to fly says:

        and don’t let them check it if they aren’t going to be your lender. toyota wanted to check my credit even when i came in prequalified from my credit union.

        in fact, my car had died, i had the mechanic drop me at the credit union, got prequalified and then called the dealer and said if they wanted to make a sale they could come pick me up which they only did BECAUSE i was prequalified.

        and the sales guy STILL wanted to pull my credit. i said no. and when i asked the finance/money/contract guy about it he said it shouldn’t have been asked at all but the sales guys get tracked on how many times they can get credit checks done.

        • Stephmo says:

          You’re actually being a bit harsh – Toyota could have been offering you much better rates – and if you would have been within the 48-hour window, it wouldn’t have mattered.

          You won’t have access to Toyota Motor Credit’s rates. You might get an idea of the rates on Edmunds – but that’s based on what independent people are posting on the site. They are not verified or backed by the indirect lenders. Indirect lenders lend to dealerships who lend to you.

          Indirect lenders can afford to lend you money at less than the cost of funds if they want to move metal in that fashion. Yay for your credit union and all, but I doubt they’re lending you money at less than the cost of funds. It’s called rate subvention and its part of their cost of doing business. A credit union would like to have your business, but they’re not likely to subvent the rate to do so.

          If the look-see costs you nothing against your score and could garner you thousands of dollars in savings over the cost of the loan, what’s to lose?

          Other than you feeling like a badass for saying “no” to a pull?

          • catastrophegirl chooses not to fly says:

            if i’m being harsh, it’s because of the way it was done: i had already seen their rates and offer and turned it down. it was higher than my credit union
            he stuck the paper for me to sign to give them permission to pull my credit into a stack of other papers right at the end of the sale conversation before going back to pay and was surprised that i read them.
            and as the money guy said, they’d rather have me financed by someone else in this economy because they get their money right then and don’t have to worry about me defaulting on the loan.

  7. kent909 says:

    Kerov
    December 5, 2009 12:48 PMFlag for review

    For the vast majority of people, internalizing the motto “pay cash or do without” would vastly improve their lives.

    =========

    Paying cash hurts your credit score.

  8. LESSTHANKIND says:

    It’s impossible to give exact numbers for different events because the effect anything will have on your scores depends on what else is on your reports, how long it’s been there, and which FICO scorecard you’re on. An inquiry might hit me for 2 pts and you for 7, because we have different credit circumstances. Some people gain points when a new account hits, other people lose points. Every gain/loss depends on what’s on your reports and what’s happening with it.

    Another reason you can’t pinpoint the effect of one event is because your scores are affected by things you don’t necessarily notice or even think about. That inquiry you think only cost you 2 pts might have actually cost more, but the additional points were offset by paying your bills on time, your utilization going down, your accounts aging, etc. People are quick to say “I did this, and lost/gained x pts for it.” Impossible to tell, as the FICO algorithm is NOT just measuring the effect of the one event you’re focusing on, but the sum of every single thing happening on your reports.

  9. VA_White says:

    My score is 790-ish. I am waiting to grow older so my accounts age enough to get me over 800. I think that’s the only thing I can do at this point to improve it.

    • treimel says:

      Whatever makes you happy, but you know there’s no difference between a 790 and an over-800 score, right? You qualify for the best credit terms available, across the board, so there’s no practical reason to try to improve it.

    • FDCPAGuy says:

      If you really want to know what to do find out what your score factors are and then work toward improving those situations.

      • VA_White says:

        I know that according to Credit Karma, the only thing going against me is number and age of accounts. My oldest account is only 13 years and I only have 17 accounts in my history. Once upon a time in college, I fucked up my credit and spent a long time in credit jail so most of my accounts were opened after I got released from FICO prison. I’m happy with my score but it would be nice to see it over 800.

    • Stephmo says:

      Over 800 actually isn’t that big of a deal – in fact, most lenders don’t care after 720 or 740.

  10. SacraBos says:

    Thus continues the conspiracy. Looking at the list, notice how it tries to drive you below the 680 mark very quickly, but then tries not to drive you so low that you can’t get a loan – just high-interest ones.

    This just pretty much confirms to me that this “secret score” is just an attempt to leverage as many people as possible out of “great credit” and into more profitable high interest credit lines. Any bets on that range being the “sweet spot” of their profit margins?

    • Verucalise (Est.February2008) says:

      Below 680 doesn’t always mean loan terms. I have a 660 and I got a vehicle loan at 5.89%. Just depends on where you are trying to access credit.

    • ben says:

      The score is just a numerical representation of your credit worthiness. If the scores were calculated differently, then loan rates would just be based on the new scores.

    • Stephmo says:

      Considering that 95% of folks out there do repay their loans – what would you have credit scores say?

      Honestly, a small percentage of individuals are responsible for the majority of the defaults. Those are your low scores.

      The mid 600s-700s represent your range that is “will repay, but you’ll likely have to spend money in calling them and sending reminders along the way or may lose money through early repayment THROUGH you’ll only be depositing this guy’s checks the whole time”

  11. MMD says:

    It’s good to know this…but does it strike anyone else as strange that this sort of information is so hard to come by? How is it that something that’s so important for my financial well being is allowed to be someone else’s proprietary information? I’ve never understood that…

    • LESSTHANKIND says:

      Because credit scores aren’t for you, they’re for your creditors. And your creditors are the actual customers of the credit bureaus and Fair Isaac, not you. Remember, it was only fairly recently that consumers were even allowed to see this stuff at all.

      The concept of “it affects your life, but it’s none of your business” is hard to swallow, but it makes (perverted) sense when you realize that competing businesses don’t necessarily want each other to know how they make decisions, or the specifics of their risk models. They don’t want a competitor using the same information to steal customers. Until a couple of years ago, Capital One even kept everyone’s credit limits a secret… wouldn’t report limits to the credit bureaus. They said it was “proprietary information,” but the fact that withholding limit information caused across-the-board score suppression didn’t hurt them either. The lower people’s scores are, the more you can limit them to subprime products with low limits, annual fees, and high interest rates. And keep them there.

      Basically, they’re not in it for you. They’re in it for themselves, And the less you know, the better it is for them.

      • tinyhands says:

        Your conclusion (that our ignorance is better for them) does not follow from your postulate (that credit scores are meant to be read by lenders, not consumers). You started out with the correct assumption, but then went all black-helicopter conspiracy theory on it.

        Borrowers do not need to know their credit scores. They only need to know what they are being blamed for (i.e., credit report) and how to avoid being blamed for more (i.e., how to act like a responsible adult).

    • Stephmo says:

      Well, when bits and pieces do get out, they do get exploited as well – so there is the flip side. Just the other year, they closed the “Authorized User” loophole.

      It used to be that if you were an Authorized User on a card, this helped increase your credit rating as far as revolving debt and good payment history went. This was added back in the day when it was much harder for individuals to obtain credit cards. And when the assumption was that individuals would make known persons Authorized Users – spouses and children mostly. Because the idea was that those individuals were likely real users of the debt who were helping to make repayment decisions.

      Fast forward to a few years ago – and not-so-honest “instant credit repair” agencies were essentially selling these “Authorized Accounts” both ways. If you were a great-scoring credit card user in need of some cash, you’d sell the ability to be an authorized user on your card (just showing the account on the bureau, supposedly – but making them an authorized user) to this agency for a few hundred bucks. This agency would then charge a few hundred more to some sucker and they’d hook up your account to their bureau and – voila! – instant score boost.

      All because someone figured out that revolving debt burden was such a high percentage of the score. And that Authorized User worked so well.

      I get what you’re saying – but I also saw this scam. And I’ve seen the thousands pay for fake companies that sell aged retail accounts that they report to the bureaus only to find out that they’ll be taken off within 90 days.

      Detailing this (and the changes that happen all the time) wouldn’t lead to consumers doing all the right things – it would lead to bottom feeders charging exorbitant sums of money to make “quick fixes” to scores. The bottom feeders already charge the cash – they’d just feel better about having business models that aren’t found out within 90 days.

  12. Bunnies Attack! says:

    “Kerov : For the vast majority of people, internalizing the motto “pay cash or do without” would vastly improve their lives.”

    Sorry, thats completely untrue unless you don’t ever want to buy a house, car or anything else that requires a loan. When I moved to the US I paid everything cash, had 1 credit card that I paid off every month and no debt. My credit score was terrible and I couldn’t qualify for anything. I had to open up a couple credit cards and use them a little bit each for months until I could qualify for anything.

    When I got married, we wanted to get a house but my wife had the same problem… no debt, one credit card. We worked on that for a year and by then, her rating had improved but we still had to pay almost a half point higher interest rate for our home loan because of it.

    • BK88 says:

      Then I guess your lender wasn’t fully educated on what MANUAL UNDERWRITING is, that is where they (gasp) qualify you for your loan on other factors than the I LOVE DEBT score, err FICO score. Yes that would require them to do more work than input your SSN into a computer to tell you if you qualify for a loan.

  13. AngelaChanning says:

    Compared to a 30 day late payment, I thought a foreclosure would have a much worse impact on one’s score.

    • Cant_stop_the_rock says:

      It is surprising to see they’re so close. The foreclosure penalty may be a little low, but the 30 day late penalty seems really high.

    • Stephmo says:

      The 30 day penalty is misleading – that’s the penalty for being CURRENTLY 30 days late. Anytime you’re currently late on anything, that’s a huge penalty. And it makes sense – who applies for new credit when you have an active account that is currently delinquent?

      At best, it’s a clerical error that needs to be straightened out (and one that you should have noticed on your last statement). Worst case, you don’t care and you’re still willing to go with another lender.

      Once it’s paid and current and becomes a simple 30 day late mark, it’s a single minor derog and then it’s a whole new calculation based on the number of 30 day lates in the last 24 months over the number of active accounts. And it’s much lower.

  14. humphrmi says:

    Most people with a 780 credit score don’t go strait to one of the major dings (foreclosure, bankruptcy, debt settlement, etc.) You would see late payments first, which would lower your score, thus reducing the impact of an eventual foreclosure or bankruptcy.

    In order to have a 780 score, you have to maintain a really low debt to available credit ratio, so suddenly maxing out a credit card for someone in that range is a big red flag. The only one I would take issue with is the “30 day late payment” because it’s entirely conceivable that someone in this range could, in this economy, find themselves strapped due to a blip – and a person with that score range is more likely to remedy the situation quickly than someone with a lower score.

  15. uber_mensch says:

    Who is Fair Isaac and why don’t ‘we the people’ abolish it.

  16. That's Consumer007 to you says:

    Is it just me or is it not only wrong that bad events are more punishing the better the score you have, but therefore the system is also designed to pull everyone down into mediocre or bad credit?

    Why is an event not the same damage points all the time? Maybe a lousy analogy but in video games when you perform the same actions, good or bad, you get the same points, positive or negative. Players would start getting really pissed if that started vacillating. Why then on something much more critical do we just accept this mean, retarded ass schema?

    Couldn’t agree more that the way it really works is not published everywhere, as widely as the Bill of Rights (which doesn’t seem to be doing too well these days.)

  17. Loias supports harsher punishments against corporations says:

    So if I act financially responsible for a long term and build up my FICO score and have one or two negative events suddenly due to unforseen circumstances, then all of a sudden I am the same credit risk as someone with mediocre financial responsibility? Doesn’t seem all that fair.

  18. pot_roast says:

    So if you max out a card one month and your score drops 30 points, it should go back up 30 points when you pay it off the next month, right? *crickets*

  19. tinyhands says:

    So a good strategy, for those of you with good credit, is to have a 30-day late payment and THEN declare bankruptcy, because the impact of the bankruptcy will be lessened. [/sarcasm]