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?
Every credit file is unique. Any credit event, whether a new account, an inquiry or late payment or collection will be scored as it fits into the whole of the credit history. The only way to fully understand the events impact is to analyze the whole credit file, something only our analysts can do.
Given this caveat, we can make some general statements and give ball-park results.
The best way to understand how much a negative event will lower your score is to remember one key rule: the higher you start, the farther you fall.
For example, if an 800 FICO score gets one $10 medical collection, the score could drop close to a 100 points. This effect of this same collection on a 680 FICO score is roughly 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 can drop significantly – enough to dramatically change the terms of a mortgage or an auto loan. An 800 score could lose up to 70 points on that 30-day late. For a 680 credit score, the fall could be 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.