2010 and Rebuilding or Protecting Your Credit Score

Written by M. Anthony Carr

If the latest numbers on credit card delinquency are any indicator, U.S. consumers are starting to get a handle on their credit card debt. In the 3rd quarter of this year, according to data from TransUnion, a credit reporting agency, the delinquency rate dropped to 1.1 percent.

The Associated press reports: “The decline is significant because of its timing. Delinquency rates usually rise in the third quarter from the prior period as people spend on summer vacations and back-to-school shopping,” said Clifton O’Neal, a TransUnion spokesman.” How you handle your debt affects your credit score and rating, which is what affects your ability to get a loan to purchase a home. The good thing about credit scores is that they are merely a snapshot of your credit at a given time. Missed payments, high credit vs. limits, too much credit, et. al., can all be corrected and cleaned up and your credit score return to a new high level.

Tim McLaughlin, senior vice president of Weichert Financial Services, answers the question – what dings on your credit affect your score and why it seems all the good loans, seem to favor those with good credit.

The Fair Isaac Corporation maintains the most popularly used score (referred to as the FICO score) and it ranges from 300 to 850.

“There are five major ‘dings’ that impact your DCS (Decision Credit Score, or FICO score) the most, some obvious, some not so obvious:

Maxed out credit cards: Doesn’t seem like a big deal in the grand scheme of things, right? Oh, it is: a maxed out credit card can reduce your DCS anywhere from 10 to 45 points, according to Fair Isaac, a hefty price to pay for accumulating debt.

30 Day late mortgage payment: In addition to the late fees, this occurrence adversely impacts your DCS by 60 to 110 points … a whopping impact for being late on your mortgage.

Debt settlement: Also known as debt arbitration or debt negotiation, it is an approach to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment in full. The downside, a 45 to 125 point drop in your DCS.

Foreclosure: Unfortunately, an occurrence we are seeing far too often as of late. In addition to the event, it will reduce your DCS 85 to 160 points.

Bankruptcy: The event that would have the single biggest negative impact on your DCS, reducing your score 130 to 240 points; an almost irreparable event.

FICO has its own web site dealing with the scoring prices and it’s a good starting place for those trying to repair their credit rating.

Here are the three credit reporting agencies that use the FICO score:

  • Equifax (www.equifax.com)
  • TransUnion (www.TransUnion.com)
  • Experian (www.Experian.com)

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