FICO gave a small peek behind the curtain at how their scoring model works and showed just how much mortgage delinquencies affect your credit score. The example they gave drew attention to three different FICO scores on the higher end of the spectrum (680, 720, and 780) and how one late payment of 30 days affected each score.
According to FICO, the impact of a 30-day late payment on a consumer s mortgage varies greatly depending on how high the consumer’s credit score already was.
FICO broke it down like this:
- People with a 680 saw their score drop to 530.
- People with 720 saw a drop down to 525.
- People with 780 saw their credit scores drop as low as 620.
The article then went on to calculate how long it would take for the scores to recover. Most consumers probably already know it ll take a while for their credit scores to bounce back from a negative mark in their profile, but I bet you didn’t think it would take THIS long:
- It takes a 680 up to 9 months to recover.
- 720 scores can take up to 2.5 years to recover.
- 780 credit scores take 3 whole years to fully recover.
Interestingly enough, consumers don’t lose more points for going forward with a short sale; the impact to their credit scores is just as bad as an outright foreclosure.
So what can we pull from this report?
As you can see, the higher your credit score already is, the more you have to lose by missing a payment and the longer it takes to recover, according to FICO.
Indeed, their scoring methods almost remind me of how I was graded in high school. You had to work hard to achieve and maintain an A+ in class, but the minute you slipped up and missed an assignment, your grades began to fall – and fall FAST – leaving you to fight a long, uphill battle to get your grades back up.
Similarly, those with the highest credit scores get hit the hardest by slipping up on something as seemingly innocuous as missing one payment date. I mean, just look at the 780 score. one late payment means losing as many as 160 points and having to wait up to 3 years for
a full recovery.
So what have we learned? That every little detail matters to your credit history and scores, so don’t slip up! If you are looking to refinance a mortgage, get a car loan, borrow money for school, or get a job, it is imperative that you not only know your credit score, but also know that your credit report is free from errors. Studies have shown that roughly 30% of all credit reports have errors.
WEALTH BUILDING RECOMMENDATION
Check your free credit score now! I highly recommend signing up for Credit Sesame . a company that provides free unlimited daily credit scores, free monthly credit reports, free 1-Bureau credit monitoring and alerts, free analysis of all your credit and loans, and free $50K identity theft insurance and ID restoration help! Unlike other “free” credit score companies who hope you forget not to cancel before their free 30-day trial is up, there’s no need to give Credit Sesame your credit card information.
A credit score is important when trying to get the best loan terms possible for a mortgage, car loan, or personal loan. Because of a delinquent $8 electric bill payment my tenant didn’t pay, I unknowingly had a credit score in the 600s that almost torpedoed my mortgage refinance! Finally, it’s simply a great idea to have constant monitoring to get a complete financial picture. You just never know with so many credit report errors and identity thieves out there. Sign up for your free credit score with Credit Sesame today.
Get A Free Checkup On Your Finances: Sign up for Personal Capital. the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning Calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.