If your credit score seems mysterious to you, you're not alone. Many people aren't sure what affects their score, or how much certain issues will impact it. This guide will help take some of the mystery out of your credit score.
What is a credit score?
While there are three credit reporting agencies ("CRA's) there are currently two formula's that people use to calculate a credit score. These are known as "FICO" and "Vantage Score". These companies are independent from the companies that actually report data to your credit history.
What are the issues reviewed that will seriously affect my credit score?
Missed mortgage payments, serious loan delinquencies, loan modifications, short sales, foreclosures and bankruptcies all drag down credit scores.
How does my mortgage payment affect my score?
Because a mortgage is such a big slice of anyone's credit profile, it carries more weight than other loans. Both FICO and VantageScore have studied and quantified those impacts.
They reached similar conclusions: for people with near-perfect records, a single mortgage payment that's 30 days late reduces a credit score enough to hurt. For anyone, a short sale - selling a home for less than the amount owed - can be almost as destructive as a foreclosure.
What are some other important factors that affect my score?
In contrast, a loan modification - when the lender approves new loan terms - can have a "very, very minimal" effect, said Sarah Davies, the senior vice president for analytics at VantageScore. In some cases, the borrower's score might drop 10 or 15 points.
With a loan modification, said Joanne Gaskin, the director of global scoring solutions at FICO, "the consumer does not have to go delinquent to get assistance."
What did the study say?
FICO looked at how choices would affect three hypothetical mortgage holders: One with a spotless 780 score; another with a good 720, who may have missed a couple of credit card payments three years ago; a third with a not-great, not-toxic 680, who has sometimes fallen seriously behind on credit cards or a car loan. (Most lenders consider poor credit about 650 and below, Ms. Gaskin said.)
How will being 30 days late affect my score?
30 days late: The gold-plated 780 drops to 670-690, the middling 720 becomes 630-650, and 680 is now 600-620. Effects are most significant for the strongest borrower. "A continued progression is going to have less and less impact on a score," Ms. Gaskin said.
How will being 90 days late affect my score?
90 days late: This is seriously delinquent, and brings the onetime best borrower down to 650-670, the midlevel one to 610-630, and the weakest to 600-620.
How will a short sale affect my score?
Short sale, deed in lieu of foreclosure, or settlement, assuming the balance has been wiped out: The result is just a bit less serious. The 780 score deteriorates to 655-675; 720 to 605-625; 680 to 610-630.
How will a foreclosure affect my score?
Foreclosure, or short sale with a deficiency balance owed: For either, 780 is 620-640; 720 is 570-590; and 680 is 575-595.
Additional resources provided by the author
Please go to the NYTimes.com and read the article in it;s entrety so you can better understand the basis for your score and how these and other events may affect your score.