How "Damage Points" affect your FICO credit score

December 1, 2009 · Posted in Commentary 

Have you ever wondered how certain events affect your FICO credit score?  Wonder no more!  Thanks to some excellent investigative reporting by personal finance writer Liz Pulliam Weston, you will be able to find out this weekend.

If you look at the graphic on the left, there are a few examples on how your financial mistakes can have a negative impact on your credit score.  If you have great credit, the impact will be greater for each scenario.

Let’s say that your credit score is 780 and you max out a credit card and pay it 30 days late.  As a result of your behavior, your credit score could dip to 625, which is not a very good rating.  On the other hand, if you let your house fall into foreclosure after not making your payments for several months, your credit score could potentially dip to 620, which is only five points lower than the first scenario.  I don’t know what your thoughts are, but the impact of the first scenario seems disproportionate when compared to the second one.  For example. let’s say that you made a single purchase that maxed-out your credit card and the 30 day late payment resulted in paying off the entire balance of that credit card.  Both are one time events as opposed to many months of nonpayment.  OUCH!

A full accounting of the once secret “damage points” will be available on the myFICO web site this weekend.  Remember that your credit not only affects your ability to get financing, but it can also impact your insurance rates and your ability to get a job.

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