The Impact of Common Credit Mistakes

 In Credit Repair

Everyone knows that making late payments and carrying too much debt can lower your credit score, but exactly how much your score is affected has been fairly ambiguous.

Until now.

FICO recently released information about “damage points” so consumers can understand how much their score will fall if they make any of the common credit mistakes, such as missing a payment or increasing the balance on their credit cards. This is an important tool for those who strive to protect a good score or repair a bad one.

Here are some common credit mistakes and the impact that they have on your FICO score:

Late Payment (30 days)

  • If you have a score of 680, Your score will decrease 60 to 80 points.
  • If you have a score of 780, Your score will decrease 90 to 110 points.

If You Max Out Your Credit Card

  • If your score is 680, you will lose between 10 and 30 points from your score.
  • If your score is 780, you will lose 25 to 45 points from your score.

If You Have a Debt Settlement

  • With a score of 680, you can expect your score to fall 45 to 65 points.
  • With a score of 780, you can expect a drop of 105 to 125 points.

If You File for Bankruptcy

  • If your score is 680, your score will decrease 130 to 150 points.
  • If your score is 780, your score will decrease 220 to 240 points.

If You Have a Foreclosure

  • With a score of 680, your score will drop an additional 85 to 105 points.
  • With a score of 780, your score will drop an additional 140 to 160 points.

One important note from the data is that those with a higher score get hit harder than those with a lower score when they make credit mistakes. The numbers show that bankruptcy does the most damage (up to 240 points), and foreclosure comes in close behind, with a hit of up to 160 points. Maxing out your credit card is the least-damaging action since it could drop your score by as little as 10 points.

Even a small drop in your credit score could end up costing you more money, however. For example, if your credit score was 780 and you had a 30-day late payment, your lower score could theoretically increase the interest rate on a car loan by 3%. On an average car loan, that 3% rise would increase each payment for 5 years by about $26 a month.

If you have a credit score of 680, however, and you make a 30-day late payment, your credit score could drop 80 points to 600. At 680, you would probably qualify for a 9.69% interest rate, but after the late payment, your score would make you eligible for a 13.79% interest rate – a whopping 4.1% increase! If your car payment was $421.90 with a score of 680, that same car payment would be around $463.19 with a score around 600.

White it’s common knowledge that higher FICO scores make life easier and help people save money, until now, consumers could only guess at what effects a certain action would have on their score. Now that the damage points have been released, consumers can protect themselves by avoiding the actions which cause a substantial decrease in the FICO score. Contact us today to learn how we can help you raise your score!

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