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FICO Reveals Points Cost to Credit Scores

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I was spending a night at a hotel in Salt Lake City while traveling on business, that I bumped across Phil Tirone’s popular infomercial.   We are so honored to have Mr. Tirone, a highly accomplished mortgage professional and creator of the 7 Steps to a 720 Credit Score program, contribute to our blog.

We have had the pleasure of having Phil Tirone, whom I met  a few years ago through my financial mentor, Douglas Andrew.  Phil has spoken to our mastermind group of financial planners, insurance agents and small business owners with great feedback.  He will help you pull back the curtain on the credit game, so you can learn the rules and WIN!

To your success…Matthew Sapaula

Enter Guest contributor – Phil Tirone:

For the first time, FICO revealed to CreditCards.com the cost of certain derogatory actions on a person’s credit score. We’ve always known that good credit scores suffer more than bad credit scores for mistakes, but how wide is the divide?

Scores above 780 will lose:

· 25 to 45 points for a maxed-out card;

· 90 to 110 points for a 30-day late payment;

· 105 to 125 points for a debt settlement;

· 140 to 160 points for a foreclosure; and

· 220 to 240 points for a bankruptcy.

Compare this to a person with a score of 680, who will lose:

· 10 to 30 points for a maxed-out card;

· 60 to 80 points for a 30-day late payment;

· 45 to 65 points for a debt settlement;

· 85 to 105 points for a foreclosure; and

· 130 to 150 points for a bankruptcy.

You might be thinking: But why do people with higher scores lose more points? Isn’t this unfair?

As I discuss in 7 Steps to a 720 Credit Score: Strategies for Excellent Credit, the credit-scoring models assume that your current performance is a far better indicator of your creditworthiness than your past behavior. You current behavior, after all, better forecasts whether you are experiencing a downward financial turn. For this reason, if you make a late payment on an otherwise spotless credit report, your credit score will probably drop more than if you have been continuously late. This is because a negative change in normal behavior is considered a warning sign of a shift in your financial situation.

If making late payments is your standard, the credit-scoring model assumes your financial situation is the same as it has always been and that you will probably make the payment eventually. You will be docked points each time you make a late payment, but the decline will be much more gradual.

-Phil Tirone


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