Credit Score News, Tips & Advice
Website CertifiedPrivacy Protected
Credit Score News, Tips & Advice « Credit Scores > Credit Score News > FICO Reveals Impact of Negative Items on a Credit Score

FICO Reveals Impact of Negative Items on a Credit Score

By Sally Maison
Published: Sunday, December 6th, 2009

Consumers know that if they do not meet the terms they signed with their lenders, something bad will happen to their FICO credit score. This will hurt their ability to apply for a line of credit, which they need most during the tough economy. But majority of consumers do not know how much marks such as late payments, delinquencies, and bankruptcies could hurt their credit rating. Fair Isaac, the company which developed the most widely used scoring method, lets consumers know before they go on a spree this holiday season.

FICO Reveals Impact of Negative Items on a Credit Score

FICO Reveals Impact of Negative Items on a Credit Score

According to Fair Isaac and Company, maxing out one’s credit limit could hurt a rating by as much as 45 points. While this may not seem big, specialists remind consumers that one point is enough to separate a good, from a bad, borrower.

FICO reminds consumers that they should avoid bankruptcy at all costs, since it could hurt their credit score by as much as 240 points. On a scoring scale of 300 to 850, finance advisers tell consumers that a 240-point drop is very serious. It could keep them from getting a loan for up to ten years, which means that they will not be able to get a car or home financing unless they go to a subprime lenders.
Subprime lenders grant loans to consumers with low ratings but they try to offset the risks of lending to low-score borrowers by charging very high interest rates.

After bankruptcy, the second most dangerous credit score killer is foreclosure, which can hurt a rating by as much as 160 points. Getting behind on a credit card payment has the least impact at 10 to 45 points.
What many consumers also do not know is that prime borrowers, those who have the highest credit ratings, risk more points with every mistake. For instance, a person fails to meet his bills by 30 days will see his credit score drop by 60 to 80 points. But a person who enjoys a rating of 780 and falls on the same delinquency will see his score drop by 90 to 100 points.

Finance advisers say while the recent disclosures by Fair Isaac would naturally frighten any consumer, it can be quite helpful as well since it makes them understand how the most widely used scoring system works. Previously, not even creditors know how FICO rates consumers.

FICO spokesman Craig Watts say while the rating system can be complicated, maintaining a good credit score is not. Paying bills on time and avoiding too much debt is all it takes for consumers to get that magic three-digit number.

No Comments

No comments yet.

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.