Credit Scoring Example
- April 5, 2017
- By: Greenpath Financial Wellness
The impact of a financial mistake on credit varies from person to person. A single missed payment will typically have a greater impact on a person with a very high credit score than for a person with a lower score. While each credit profile is unique, this credit score example should help you understand how late payments or other issues might affect your credit.
From time to time, you may run into financial troubles that impact your score. Some hardships may change your score by a small amount; others can drop your score a lot.
Here is a comparison of the impact that credit problems can have on the scores of two different people. This credit score example can help you understand changes in your credit score. Here’s a snapshot of Jeff and Michelle’s credit profiles:
*Note that their initial FICO scores are 100 points apart.
|Jeff has a score of 680 and:||Michelle has a score of 780 and:|
|Has six credit accounts, including several active credit cards, an active auto loan, a mortgage, and a student loan.||Has 10 credit accounts, including several active credit cards, an active auto loan, a mortgage and a student loan.|
|An eight-year credit history.||A 15 year credit history.|
|Moderate utilization on his credit card accounts (his balances are 40-50% of his limits).||Low utilization on her credit card accounts (her balances are 15-25% of her limits).|
|Two reported delinquencies: a 90-day delinquency two years ago on a credit card account, and an isolated 30-day delinquency on his auto loan a year ago.||Never has missed a payment on any credit obligation.|
|Has no accounts in collections and no adverse public records on file.||Has no adverse public records on file.|
Below is an example of how the scores may change based on different scenarios:
|Current FICO Score||680||780|
|Scores after one of these is added to the credit report:|
|Maxing out a credit card||650-670||735-755|
|A 30-day delinquency||600-620||670-690|
|Settling a credit card debt||615-635||655-675|
As you can see, maxing out a credit card has the smallest impact. Declaring bankruptcy has the biggest impact. For someone like Michelle with a high score of 780, declaring bankruptcy could lower her score by 240 points. One reason is that filing bankruptcy involves more than one credit account.
Notice that Michelle would lose more points for each misstep than would Jeff. That’s because Jeff’s lower score of 680 already reflects his riskier past behavior.
Source of information – www.myfico.com (Credit Education)
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