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Credit scores are mentally placed in a category both unknown and unknowable. This is pretty remarkable considering most average Americans can locate their credit score (or more properly their credit scores since there are many of them) through online searches. This can be accomplished either through an online service such as Credit Karma or by checking their credit score(s) as listed by one or more creditors. The credit bureau names Equifax, Experion and TransUnion are well known and most consumers are aware of a numerical figure known as a FICO score. FICO (short for “Fair Isaac Corporation”) scores range from a low of 300 to a high of 850. Most consumers know that a high score is described as opening the door to better loan and mortgage rates and qualification for credit overall as well as sometimes access to better car insurance or rental deals among other benefits.
The mystery is determining how these various services determine their scores. You realize your score considers whether payments were made on time, the length of your credit history and similar factors. However, for your individual case the answer is rarely complete or satisfying. How late do you have to be to make a substantial dent in your score(s)? Does it matter if the account was a large one or smaller?
Recognizing these unknowns and that, as the author stated, “FICO won’t comment on individual situations,” George Mannes, writing for the December 2023/January 2024 edition of AARP Magazine penned an article titled “How I Ruined My Credit Score and What You Can Do to Protect Yours.” Mannes then undertook what one might consider the extraordinary step of trashing his own impressive FICO score of 826 to see just how far down it would go and how long he would live in credit purgatory by doing so. He summarized his conclusions in “Six ‘Lessons’ and Five ‘Don’ts.’” Here they are.
“Lesson 1. I have (there are) several different credit scores to ruin.” Mannes learned that FICO has different scoring formulas, including the regularly known one and others focused on mortgage lenders, auto lenders and credit card issuers. FICO and Vantage-Secure draw information from the credit bureaus and then draw their own conclusions.
“Lesson 2. Focus on ranges, not points.” The percentage of overall available credit used is one determining factor. The author’s Vantage Score dropped seven points when he used 8% of available credit as opposed to his prior 4%. Scores will bounce up and down over time. Lenders establish cut-off lines unknown to consumers.
“Lesson 3. Forget common sense.” The author applied for multiple credit cards over a short period of time. Surprisingly, it did not negatively affect his credit score. A Vantage-Secure representative did tell him, however, that “opening up several credit cards could be deemed risky for certain profiles.” One wonders what could be the difference.
“Lesson 4. Little payments count a lot.” This observation was significant. Based on the author’s experience it may be that missing a payment especially if it is a long time delay or paying less than the minimum might be the greatest determinant of a poor credit score. Mannes paid $35 on a $104 balance account where the minimum was $40 and did not pay January bills for two accounts at all. The average of his three FICO scores then dropped a massive 81 points! His older credit cards were being paid off completely and on time including one very large payment of $5,700. When he skipped payments months later on another card his FICO average slipped to 692. The small account delinquencies and delay in payment mattered.
“Lesson 5. There are consequences.” Writing from an average FICO score of 697 (a 129 point drop from the beginning) Mannes was told if he paid normally and on time he could raise his credit score to 749 in two years. It could take seven years, the length of time delinquent payments are allowed to stay on your record by federal law to return to his old score.
“Lesson 6. Don’t try this at home.” Do not yourself try to experiment.
Finally, Don’ts. Don’t pay a service to have your credit score fixed. Don’t open a new account if you are maxed out on others. Don’t expect that paying off a mortgage or car loan will help. Lenders consider installment payments. Don’t close a credit card when it is paid off. Do pay credit card bills on time and work to lower your balances.
Janet Colliton, Colliton Elder Law Associates, PC, Certified Elder Law Attorney, limits her practice to elder law, estates, retirement, and special needs planning and administration, and guardianships and is located at 790 East Market St., Suite 250, West Chester, 610-436-6674, colliton@collitonlaw.com. She is also, with Jeffrey Jones, CSA, co-founder of Life Transition Services LLC, a service for families with long term care needs.
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