Quick Post: New Info On How Debt Effects Credit
The exact method of determining credit scores is a closely guarded trade secret. So it is rather surprising that FICO has released this information. It doesn’t tell us everything, but it does help us understand how much of an impact debt can have on credit scores.
The New Info
| |
Effect on a 680 score |
Effect on a 780 score
|
| Maxed out card |
-10 to -30 |
-25 to -45 |
| 30 day late payment |
-60 to -80 |
-90 to -110 |
| Debt Settlement |
-45 to -65 |
-105 to -125 |
| Foreclosure |
-85 to -105 |
-140 to -160 |
| Bankruptcy |
-130 to -150 |
-220 to -240 |
What We Already Know:
Payment history – 35%
Amounts owed ( amount owed in proportion to total credit limit) – 30%
Length of credit history – 15%
New credit ( recent inquiries and newly opened accounts) – 10%
Types of credit used (revolving, installment, or consumer finance) – 10%
Source: FICO
Another instance that FICO revealed some rather controversial info was during July 1999. They stated that the type of occupation, such as professional or blue collar, was a factor of up to 50 points (FICO Presentation). However, on FICO’s website it clearly states that occupation is not scored (FICO scoring).
Quick Post: info you need to know now
I have gotten quite a few questions regarding the statute of limitations, so I have decided to start Quick Post; A short post for hot topics or time sensitive material.
What is the statute of limitations?
The statute of limitations for a debt is the amount of time creditors can file a lawsuit on an unpaid debt. However, creditors and collectors can still try to collect the debt. The SoL (statute of limitations) varies from State to State.
A SoL on a debt can become void if you admit to the debt being yours. In other words, if the creditor is asking you if this is your debt or if you made certain charges, and you respond yes, the debt is reactivated. The SoL will no longer apply.
Zombie debt is a debt past the statute of limitations. This debt is uncollectible, meaning you no longer can be sued by collectors for the debt. However, that does not stop collection agencies from coming after these old debts. They count on the fact that the average individual does not know about the SoL or they hope to void the SoL by getting you to admit to the debt.
Bottom line- You can pay the debt if you choose, but you can’t be sued if you don’t. Also, that negative report will remain on your credit report for seven years from the date of the charge off.
Check what the SoL is in your State.
Rebuilding your bad credit is not as difficult as you think. The first step is to realize and prove to yourself you can be responsible in handling credit cards. If your credit is bad, you most likely do not even have a credit card and it might be hard to obtain from major banks, but it is okay because you still have some options.
- Secured Credit Cards- Works like an unsecured credit card but the cardholder needs to make a deposit against the credit limit. The creditor will take the deposit if you default on the credit card payment. The credit limit is usually around 50-100% of your deposit. If you cannot get a credit card the conventional way, this is a great way to improve your paying habits and improve your credit so you can get an unsecured card. Make sure the creditor will report to all three major credit bureaus and make sure to pay off your balance in full. Do not charge anything you cannot afford! After one or two years of timely payments, the creditor will usually allow you to convert your secured card to an unsecured card.
- Department Store and Gas Cards- These cards are great to use for rebuilding your credit. Make sure you do not have more than two of each. Make sure you pay your balances in full, make payments on time, do not make any new charges until your balance is zero, and keep your balances under 25% of your credit limit.
- Credit Cards for Bad Credit Scores- There are unsecured credit cards available based on your bad credit score. The rates can be pretty high but if you make payments on time and pay off your balance in full this can improve your credit score. Click here to find a bad credit score card or a secured card.
