FICO scores can sometimes make or break your personal financial life. The scoring system credit bureaus use has often been misunderstood; many consumers don’t exactly understand how a FICO score even works or anything about the type of mistakes that can actually hurt your FICO score.
New Education in Finance
Because of our recent financial woes, there has been a bigger push by consumer advocacy groups to get consumers educated about the rules, regulations, and the basics of personal financial education. As such, FICO has released information about ‘damage points‘ which outlines what financial mistakes can cost you — quite literally. In the past, most consumers could only guess what a late or missed payment may do to a credit score but now they can really know what actual damage is being done to their FICO scores.
Many of the point-lowering errors people make are common things that happen to a good majority of credit card holders. For instance, if you have a good credit score but have maxed out a credit card, you can expect your credit score to plummet as much as 45 points. Those who have made payments that were 30 or more days late can expect a decrease by as much as 80-110 points, which can radically change the way a credit report is viewed by lenders. Bigger financial issues such as participating in a debt settlement can drop a good credit score down by as much as 105-125 points. Facing a home foreclosure? Expect a credit score to drop at least 85-160 points. If you are planning to file bankruptcy, make sure you are prepared to lose up to a whopping 240 points or more on your FICO score.
Getting Back on Track
As many consumers are learning the facts about what it takes to remain on good financial track as well as the importance of a good credit score, there is evidence that people are making a concerted effort to use credit cards wisely and stay on top of their financial matters. FICO, the company that started the methodology for scoring one’s credit using a three-digit number system is hoping that by shedding the light on what damage is being done, more consumer will pay attention to their financial matters with a closer eye and a tighter budget.
Credit Cards Can Help
While improper credit card use can deteriorate a credit rating rather quickly, having and maintaining a good credit card spending and payment history can have a positive influence on your credit score. Consumers who understand the importance of spending on a budget and paying the outstanding balance in full each month, will reap the benefits of a boosted credit score especially if the credit card account is a long standing one.
Avoid Mistakes
As mentioned, the items that can dramatically drop your credit score are common mistakes the average consumer can make at any time. It is important to prevent history from repeating itself by organizing your bills each month, paying bills online to avoid being late, and living within your means at all time. Too often, consumers have made the wrong assumption in that credit cards are an extension of their income rather than a convenient way to make purchases they could actually afford. Taking responsibility now for credit and financial accounts should be a priority. With time and effort on part of the consumer, credit scores can indeed be improved upon and rebuilt to meet the new demands of the credit industry.
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