How One Late Payment Can Kill Your Credit Score
Recently, 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.
They 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?
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!
Check Your Credit Score! You can check your credit score for free at GoFreeCredit.com to protect yourself from identity theft and see if you have errors on your report. For over a year, I thought I had a 790ish credit score until my mortgage refinance bank on day 80 told me they could not go through due to a $8 late payment by my tenants from two years ago! Due to the late payment, my credit score was hit by 110 points to 680 and I could not get the lowest rate! I had to spend an extra 10 days fixing my score by contacting the utility company to write a “Clear Credit Letter” to get the bank to follow through. If you do not want the credit monitoring service, you can simply cancel before the grace period is up.
This is a post from Marc Chase, President of Product Development for My Credit Group.