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Ask FICO: Are All Negative Items Equally Bad?

, by Tom Quinn

Ask FICO is a Q & A column where our credit scoring expert, Tom Quinn, answers common credit score and credit-related questions that you have. Post your questions on our Understanding FICO Scoring and General Credit Topics threads on the myFICO Forums.

This month's question: "How are negative items viewed? All the same?

Your credit reports contain a great deal of information about how you manage your credit. A credit report is an important piece of information lenders will access and thoroughly evaluate when assessing your request for credit.

The credit report consists of five main "information zones":

The presence of negative information such as missed payments reported on your credit accounts, obligations that have gone into collections or the presence of a derogatory public record may have a substantial impact on a FICO Score.

FICO Scores evaluate negative items in terms of severity, recency and frequency.

  • Severity - for example, is the negative information being reported a 30-day late payment or a charged off account? Generally speaking, the more severe the negative item, the greater impact on a FICO

  • Recency - did the negative item take place recently (2 months ago for example) or in the distant past (e.g., 6 years ago)? The presence of recent delinquency is heavily weighted by the FICO Score as analysis consistently shows it is very predictive of future credit risk.

  • Frequency - is there a pattern of negative items reported or is there only an isolated one-time occurrence? A credit report reflecting multiple negative items is generally more risky.

The more severe, recent or frequent the negative information reported on the credit report, the greater impact it will likely have on a FICO Score.

What about the type of credit obligation on which the negative item is reported? For example, is a missed payment on a mortgage considered more negative than a missed payment on a credit card? With base FICO Scores, the answer is generally no. After evaluating the negative information in terms of severity, recency and frequency - the type of account on which the negative item was posted does not alter the FICO Score's predictive power. It should be noted, however, that a lender may have its own rules or criteria that indeed consider the type of account on which negative information is reported.

If you are in a situation where you have negative information reported on your credit file, it's likely being considered as part of and impacting your FICO Scores. The good news, however, is that, as the negative information ages and your more recent credit behavior reflects that you are consistently paying as agreed and keeping amounts owed low, your FICO Scores will likely increase over time.

We took this question from our community of over 200,000 members. Join in the discussion and share your credit journey.

Tom Quinn

Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.

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