Late Payment Can Drop Your FICO Score 110 Points

FICO has finally opened up a little about the number of points at stake when you are careless with your credit. The folks at FICO recently coughed up some new information about just how much a score can drop when you make a credit mistake.

Here’s what they revealed:

  • A late payment of 30 days can drop your score 110 points
  • Maxing out a credit card can knock 45 points from your score
  • Working out a debt settlement deal with a creditor can cost you 125 points
  • Foreclosing on a property can take up to 160 points off your score
  • Declaring bankruptcy will devastate your score, reducing it by up to 240 points

Those with higher credit scores suffer more

If you’ve got great credit (say, a score of 780) you’re going to pay more for your credit mistakes than someone with a 680. For instance, bankruptcy will shrink a 780 credit score to a paltry 540 (a loss of 240 points). If someone with a 680 credit score declares bankruptcy, though, they’ll only get docked 150 points, dropping them to a 530. So the higher your score, the more points your credit mishaps will cost you.

A lower score = higher interest rate

You might be wondering why you should care if your credit score falls. Does it really cost you any money?

Yes, actually, if you go out and apply for a new loan. For instance, if you apply for a 30-year-fixed mortgage of $150,000 with a credit score of 735, you’ll likely qualify for an average 4.688% interest rate. While that’s a great interest rate, a score of 780 would have qualified you for one even lower, around 4.466%. Translated into dollars, the lower credit score means you’re shelling out an extra $7,155 a year to your mortgage lender—not exactly chump change. (To plug in your own scenario, check out the loan calculator.)

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The big disclaimer

You shouldn’t take the numbers from this new FICO revelation as definitive though. They are strictly based on the specific situations of two hypothetical consumers. The first consumer has 10 credit cards, stays well under her credit limits, and has no other delinquencies on her report (hence the 780 credit score). The second consumer has less credit history, uses about half of his credit limits, and has a few negative marks (netting him the 680). The people at FICO then revealed what would happen to these two people’s credit scores if they were to miss a payment, max out a card, negotiate a debt settlement, foreclose on a property, or declare bankruptcy.

The point? FICO will treat each one of us differently depending on our specific credit situation. While it may seem like FICO has finally leaked some real data about its formula, that’s not the case. It remains as mysterious as ever. Sadly, the only way you’ll truly find out how bad a credit mistake will hurt you is to make one.

The advice for maintaining a good score remains the same as it always has: pay your bills on time, only use about 10% of your credit limits, develop a long credit history (don’t close accounts), and don’t apply for new credit if you don’t have to. For more about these credit tips, see the SpendOnLife guide to Improving Your Credit Score.

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