Consumer Law

FICO Reveals How Mistakes Affect Credit Scores

By Kemnitzer, Anderson, Barron, Ogilvie & Brewer

Banks and other creditors commonly extend credit based on your credit score. Your score is based on such factors as late payments, missed payments, number of open accounts, length of one?s overall credit history, actual amount of available credit used and negative occurrences such as charge-offs and bankruptcy.

FICO, a company that created credit scoring, has long kept its exact formula secret. Until Thursday, FICO revealed only broad categories of factors influencing the score, but not the number of points at stake for consumers who fail to pay as agreed. The "damage points" information will be made available through its myFICO.com Web site starting this weekend.

FICO's information shows that bankruptcy does the most serious damage to a credit score (up to 240 points), followed by foreclosure (up to 160 points) while maxing out a credit card has the least numerical impact (as few as 10 points).

Those with good or excellent credit -- so-called prime borrowers -- put more points at risk with each mistake. For example, someone with an average credit score of 680 who pays a bill 30 days late will see a drop of 60 to 80 points. But for someone with an excellent credit score -- 780 -- that same delinquency can send a FICO score tumbling by 90 to 100 points.

Full post as published by California Credit Law Blog on November 29, 2009 (boomark / email).