Public records and FICO® Scores
Public records are legal documents created and maintained by Federal and local governments, which are usually accessible to the public. Some public records, such as divorces, are not considered by FICO® Scores, but adverse public records, which include bankruptcies, judgments and tax liens, are considered by FICO® Scores. FICO® Scores can be affected by the mere presence of an adverse public record, whether paid or not.
Adverse public records will have less effect on a FICO® Score as time passes, but they can remain in your credit files for up to ten years based on what type of public record it is. Judgments specifically remain in your credit files for seven years from the date filed.
A judgment in your credit file
Judgments will almost always have a negative effect. Creditors, collections agencies, and legitimate credit counselors may be able to provide direction, or negotiate a payment plan, to people when they are having trouble responsibly managing their financial health, and before a debt turns into a judgment.
Credit missteps – how their effects on FICO® Scores vary
People can run into financial difficulties that impact their FICO® Scores. Some difficulties may change your score by a small amount, while others can drop your score significantly. What your score was before the difficulty appeared in your credit files also can make a difference.
Here is a comparison of the impact that credit problems can have on FICO® Scores of two different people: Alex and Benecia. Note that their initial FICO® Scores are 100 points apart.
First, let’s give you a general snapshot of Alex’s and Benecia’s credit profiles:
|Has six credit accounts, including several active credit cards, an active auto loan, a mortgage, and a student loan
||Has ten credit accounts, including several active credit cards, an active auto loan, a mortgage and a student loan
|An eight-year credit history
||A fifteen-year credit history
|Moderate utilization on his credit card accounts (his balances are 40-50% of his limits)
||Low utilization on her credit card accounts (her balances are 15-25% of her limits)
|Two reported delinquencies: a 90-day delinquency two years ago on a credit card account, and an isolated 30-day delinquency on his auto loan a year ago
||Never has missed a payment on any credit obligation
|Has no accounts in collections and no adverse public records on file
||Has no accounts in collections and no adverse public records on file
Now let’s take a look at how different credit missteps impact their FICO® Scores:
|Current FICO® Score
|Score after one of these credit missteps is added to each credit file:
|Maxing out (charging up to the limit) a credit card
|A 30-day delinquency
|Settling a credit card debt for less than owed
As you can see, maxing out (charging up to the limit) a credit card has the smallest impact of these credit missteps. Declaring bankruptcy has the biggest impact to their scores. For someone like Benecia with a high FICO® Score of 780, declaring bankruptcy could lower her score by as much as 240 points. That’s because FICO® Scores generally give the most weight to payment history. Bankruptcy is included in one’s payment history. Also, a bankruptcy often involves more than one credit account, compared with a foreclosure which often involves just a single account.
High scores can fall farther. Notice that Benecia would lose more points for each misstep than would Alex, even though her FICO® Score starts out 100 points higher. That’s because Alex’s lower score of 680 already reflects his riskier past behavior. So the addition of one more indicator of increased risk on his credit file is not quite as significant to his score as it is for Benecia.
Settling a credit card debt is the third credit problem listed. It means that the lender agrees to accept less than the amount owed on the account. A settled account indicates a higher level of risk and typically happens only when an account is overdue. So in Benecia’s case, to help make the debt settlement plausible we also added a 30-day delinquency to her credit file. Her new FICO® Score reflects both changes. Alex’s credit file already included a recent delinquency.
Are you more like Alex or Benecia? Many different combinations of information in a credit file can produce a FICO® Score of 680 or 780. Depending on what’s on your own credit files, your experience may vary from that of Alex or Benecia, or be similar. In any case, if a person knows what’s in their credit reports at each of the three major consumer reporting agencies, he or she may be able to better understand the severity of impact of a financial misstep to their score.