"Damage Points" Chart Better Than Nothing
Liz Pulliam Weston, the popular personal-finance columnist, recently released an article on MSN Money entitled "5 ways to kill your credit scores". I actually follow most of Ms. Weston's RSS feeds, but for some reason I skipped over this one during my daily dive through credit-related news.
I'm not sure why I skipped it. It must have been the name—it didn't really spark my interest. For whatever reason, I just assumed it was another one of those articles preaching the same old advice about credit scores. You know how they go, right? Pay your bills on time, keep your credit utilization ratio low, and avoid bankruptcy, or else you can kiss your good credit score goodbye.
What I didn't realize was that I was missing out on some juicy new information related to how specific actions, such as a 30-day late payment on a credit card, could affect one's credit score in terms of actual lost points. And even better, this information apparently came straight from the the 800-pound gorilla in the credit scoring industry—FICO. By the way, the hit after a 30-day late payment is supposedly a range of 90 to 110 points for an imaginary person that has a credit score of 780, a 15-year credit history, a nice mix of 10 credit accounts, no late payments or other serious negatives, and a credit utilization ratio of 15% to 25%. That's a big hit!
John Ulzheimer at Credit.com even chimed in on this post yesterday with his take on what he calls the "lost points" chart and how consumers should interpret it. He basically reiterates Ms. Weston's point that the ranges provided by FICO should be taken with a grain of salt because they are based on hypothetical examples and aren't reflective of every consumer's individual credit profile. Which, of course means the ranges could still vary significantly from one consumer to the next.
Hypothetical or not, I think it's great information that is certainly better than having nothing at all. Which, is essentially what we had before. And I'm personally thankful that the next time I read an email or a question in our Credit Talk discussion forum about how much certain actions could possibly hurt one's credit score, I can answer with a little more valuable information than simply "Well, it depends."
Ms. Weston wrote a superb article, so I highly recommend taking a few minutes to read it here. Some of the other consumer actions she covered in the "damage points" chart include maxing out a credit card, foreclosing on a property, and settling an unpaid debt.