You know, I’ve always had one question: How do credit bureaus figure out credit ratings and how are those scores affected by late mortgage payments, foreclosure, etc.?
I’ll bet you had the same question as well! Part of the reason the question arose was because the bureaus seemed so secretive about the process.
Well, as it turns out, another part of the reason was because it’s difficult for Fair Isaac and other credit reporting agencies to explain the rating process because they have to consider so many variables!
That is, the ratings all depend on factors like:
• Length of credit history
• Payment history
• Number of credit card accounts open
• Number of negative reports on credit card accounts, etc.
Generally speaking, negatives in any of the above areas will drop your credit score to one degree or another, depending on your history! However, it’s when your mortgage payments start getting past the 90-day due mark, that your score really falls.
The reason for the drop is that the bureaus know people are much less likely to pay their overdue mortgage obligations after the three month period! That’s when it’s possible to be heading into foreclosure and bankruptcy territory.
The, result, as you can see in the list below, is a big drop in a credit score:
• 30 days late: 40 - 110 points*
• 90 days late: 70 - 135 points
• Foreclosure, short sale or deed-in-lieu: 85 - 160
*Source: Fair Isaac
Now, how much your credit score drops depends on your particular situation.
For example, if you have a long, solid credit history with no really serious blemishes on it, then you’ll probably take a smaller hit because lenders see you as, overall, a reliable borrower.
However, if you have a short credit history with a few blemishes, then you’ll take a bigger hit since they see you as a bigger risk.
Conversely, those individuals who have very high credit scores have more to lose than borrowers with low scores.
For example, one black mark on the record of a person with an 800 score has a greater impact than that of an individual with a score in the 500 area. In other words, high-credit-score individuals have farther to fall than low-credit-score borrowers.
So, here’s my question: how much credit do you have and how well do you manage it?
If you’re a person with credit challenges, then I can help you improve that score with proven methods. And I’ll be able to do that through a highly effective credit-education program called 720score.com that I’ll be bringing to the Omaha market very soon!
Hey, if you’d like to talk about methods of improving your credit score or on any topic related to real estate, call me today at 402.301.4500 or contact me at terry@terrywilliams.com.
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