How do credit missteps affect FICO Scores?

You may run into financial difficulties that impact your FICO score. Some difficulties may change your score by a small amount, others can drop your score significantly. What your score was before the difficulty appeared on your credit report also can make a difference.

Here is a comparison of the impact that credit problems can have on the FICO scores of two different people: Alex and Benecia. Note that their initial FICO scores are 100 points apart.

First, let's give you a general snapshot of Alex's and Benecia's credit profiles:

Alex Benecia
Current FICO Score 680 780
Number of credit accounts 6 10
Lenght of Credit History 8 Years 15 Years
Credit Utilization Moderate (40% to 50%) Low (15 to 25%)
Reported delinquencies A 90-Day (2 years ago)
and a 30-Day (a year ago)
None
Collections or adverse public records None None

Score after one of these is added to the credit report

Alex Benecia
Maxing out a credit card 650 to 670 735 to 755
A 30-day delinquency 600 to 620 670 to 690
Settling a credit card debt 615 to 635 655 to 675
Bankruptcy 530 to 550 540 to 560

As you can see, maxing out a credit card has the smallest impact of these credit missteps.

Declaring bankruptcy has the biggest impact to their scores

For someone like Benecia with a high FICO score of 780, declaring bankruptcy could lower her score by as much as 240 points. That's because the FICO scoring model generally gives the most weight to payment history when calculating the score, and bankruptcy is included in one's payment history. Also, a bankruptcy often involves more than one credit account.

High scores can fall farther

Notice that Benecia would lose more points for each misstep than would Alex, even though her FICO score starts out 100 points higher. That's because Alex's lower score of 680 already reflects his riskier past behavior. So the addition of one more indicator of increased risk on his credit report is not quite as significant to his score as it is for Benecia.

Settling a credit card debt is the third credit problem listed

It means that the lender agrees to accept less than the amount owed on the account. A settled account indicates a higher level of risk and typically happens only when an account is overdue. So in Benecia's case, to help make the debt settlement plausible we also added a 30-day delinquency to her credit report. Her new score reflects both changes. Alex's credit report already included a recent delinquency.

Are you more like Alex or Benecia? Many different combinations of information on a credit report can produce a FICO score of 680 or 780. Depending on what's on your own credit report, your credit score experience may vary from that of Alex or Benecia. By taking a look at your own credit report and comparing it to the profile of Alex and Benecia, you might be able to learn what to expect if you happen to encounter a credit misstep.

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