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.
Don’t Let A Late Payment Kill Your Credit Score
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.
Build Your Wealth
* 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.
* Refinance Your Expensive Debt: With a good or improving credit score, you should highly consider refinancing your expensive student loan, mortgage, or credit card debt with Credible. Credible is a top lending marketplace that provides real quotes, all in one place. It is the efficient way to get the best deal out there.
Updated for 2020 and beyond.