One of the most annoying things about credit is that consumers' destinies are controlled in large part by their FICO credit score, which has always been a black box to anyone outside the industry. How much does a credit mistake actually hurt your credit profile? Is one late payment really that bad? How many points will foreclosure decrease your score by? Finally, FICO has decided to publicize a small glimmer of their methodology.
The FICO spokesperson I contacted stressed that these score changes are only guides and actual individual experience may vary. But at least this gives consumers some idea of how badly various actions hurt their credit scores.
Put another way, here's how that chart describes the harm to each person in the scenarios they provide. I made this one, based on the previous chart:
In short, bankruptcy and foreclosure will hurt your credit score a lot. What I found particularly surprising is how much damage a 30-day delinquency causes. Settling also creates a major ding.
Interestingly, those with better scores get hurt worse by credit mistakes. I guess on some level that makes sense, since you might view their high score as needing significant revision if one of these mistakes occurred. Still, you would think that something like one delinquency shouldn't make someone's credit suddenly change from pristine to barely prime.
What this information, sadly, doesn't include is by what magnitude good credit behavior raises your score. The FICO spokesperson directed me to this page, which allows you to pay $15.95 to play with various scenarios to see how your actual score would change. I doubt it's worth the cost for many of us to do that, however. It's pretty clear that the easiest way to improve your credit score is simply to pay your bills on time and not overuse credit.
Still, this information release is interesting. I look forward to the day when credit scores are completely transparent. Even though this new data is clearly incomplete, it's a step in that direction.
