‘Secrets’ of maintaining your credit score revealed

The Fair Isaac Corporation, creator of the FICO credit score, usually doesn’t reveal many details about how missing a mortgage payment will affect people’s scores. But the company recently issued a commentary to lenders that contained some unusually specific information.

FICO scores range from 300 to 850. Scores of 750 or higher generally qualify for the best credit terms.

Here are some of the newly released details:

  • Being 30 days late on a mortgage payment – even if it was an accident – can lower a 780 score by 100 points. That’s a huge drop.
  • Being 30 days late on a mortgage payment won’t cost you as many points if you started out at 680 or 720, but the effect can be just as bad in terms of where you end up.
  • If you go on to be 90 days late, or if you default, your score will go down even further, but not a whole lot further. It appears that FICO thinks the first 30-day miss is a huge red flag, and it’s not all that surprised if people who miss a payment by 30 days never make it up.
  • A foreclosure or a short sale can reduce a good credit score by 150 points. Interestingly, a “deed in lieu of foreclosure” – where the owner simply transfers ownership of the property to the lender – results in less of a credit score reduction.

FICO apparently wanted to release the information to counter advice that some homeowners were being given, such that they should stop making mortgage payments in order to negotiate with their lender.

A good credit score is important for all sorts of reasons. A person with a 780 score would typically pay about $4,000 less over the life of a four-year, $25,000 car loan than a person with a 620 score. A person with a 780 score would also probably pay about $3,000 per year less on a 30-year, $250,000 fixed-rate mortgage.

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