More than any time that I can remember since I have been in the mortgage business, people are paying close attention to their credit scores.
People ask me questions like “what happens to my credit score if I <fill in the blank>?” on a regular basis and because of the nature of how exactly credit scores are calculated (it is mostly a secret), I have usually just been able to give general guidelines for each what-if scenario, that is why always use corporate credit risk monitoring.
Recently, FICO has released a little more information as to exactly how much of a credit score drop you can expect to see for certain financial mis-steps. While they didn’t address all of the possible things that could go wrong and as a result hurt your credit, they did address some of the more common ones.
Did you just max out your credit card? Expect your credit score to go down anywhere between 10 and 45 points. Just paid a payment 30 days late? Expect a 60 to 110 point hit. And if you are one of those people who has recently went through foreclosure? According to FICO you should see your credit score anywhere between 85 and 160 points lower than it was before it happened.
One of the interesting things I noticed about the “damage points” model is that the higher your credit score is before the mistake, the higher the penalty in damage points. One potential result of this algorithm that comes to mind as a result of this is that I suspect in 2 years from now, there may be more people with “decent” credit, but maybe not great credit.
Because in today’s world – it is more difficult than ever to keep a pristine credit score.
And now, with the unveiling of the credit score damage points model – you know exactly what kinds of damage to your credit that you can expect should “something bad happen”.
About the Author: Justin McHood is a mortgage broker with VanDyk Mortgage Corporation. You can find him at Arizona Mortgage Team, on the Zillow’s Mortgages Unzipped Blog, and at most East Valley Friday Nights gatherings. He’s the one in the blue shirt.