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After analyzing tens of thousands of credit reports, one conclusion is all too clear: any negative event will severely lower a FICO score. But how much?
The best way to understand how much lower is to remember this one key thing: the higher the start, the farther the fall.
For example, if an 800 FICO score gets one $10 medical collection, the score will drop close to a 100 points. This effect of this same collection on a 680 FICO score is about half: around 50 points.
Paying the collection does not get any points back in either case.
Some would think that a 30-day late is just a minor boo-boo. After all, maybe it was only on a little department store card with a monthly payment of $15.
In reality, scores will drop significantly – enough to dramatically change the terms of a mortgage or an auto loan. An 800 score will lose up to 70 points on that 30-day late. For a 680 credit score, the fall is about 50 points.
Always remember this, there are no boo-boos in the credit world, only bombs and bigger bombs. You must be flawless in paying bills on time; you must avoid anything derogatory.
Few things in our lives require absolute perfection every day, every month and every year. Credit is one of those things.
Loan officers miss this a lot and so do consumers.
Many believe – and try to use the tactic of – “Hey, let’s dispute this account online. Put it in dispute to take it out of the credit score.”
There’s an assumption that when you write a letter or dispute something online, which creates a 30-day investigation (called a reinvestigation under the Fair Credit Reporting Act), that you are putting the account “in dispute” and removing its effect on the credit score.
But reinvestigation and “in dispute” are two different things.
Disputing an account means that in 30 days an investigation will be completed, in 30 days or less. At the end of that investigation, the account can look exactly like it looked before or have other changes, whatever the investigation produced. It’s wrong to assume that because it was disputed, that the account will be “in dispute.”
This goes back to the Metro 2 code and there are very different types of disputing account information: disputed by consumer, dispute resolution pending, dispute after resolution. One of those may or may not be on the account when it’s over.
And, that brings us to our main point: Not every disputed account is out of the score.