The other day I listened in on a Making Home Affordable training webinar entitled The Impact of Mortgage Assistance on Credit. The training was particularly noteworthy because of its presenter: Joanne Gaskin, Senior Director of Scores and Analytics at FICO. Yes, Joanne did a great job presenting the material. But even more exciting — she was willing to answer listener questions about FICO scores. It was clear that the audience was salivating — I mean, when do you get to ask FICO what goes on in their score-making world!
Here are some interesting tidbits I gleaned from Ms. Gaskin’s presentation:
Ms. Gaskin presented a “simulated” chart of the impact of the following on consumer scores:
- late payments
- short sale with deficiency
- short sale without deficiency, and
The statistics were simulated because they weren’t based on actual consumers, but were FICO’s approximation of what would happen to the average consumer going through the various events. The chart presented the impacts for consumers starting with different scores.
Here’s what I learned:
Bankruptcy Is the Worst, Followed by Foreclosure
Bankruptcy had a slightly worse impact on scores than any of the other events. Foreclosure was second to last in terms of the biggest negative impact. Short-sellers did slightly better — those without a deficiency faring better than those without. But there wasn’t a huge difference between all of these events.
Late Payments Have a Huge Negative Impact
Surprisingly, having a 30-day, 60-day, or 90-day late payment had a big negative impact on a score. Granted, it was not as large as going through foreclosure, but scores dropped significantly all the same. For example, a consumer with a starting score of 680 dropped to 600 with one 90-day late payment. Foreclosure for the same consumer dropped the score to 575. That means that the late payment caused an 80-point drop; from there it was just a 25-point drop once the foreclosure happened.
The Jury is Out on the Impact of Loan Modifications
According to Ms. Gaskin, loan modifications are currently reported as CN and CO on credit reports. For now, the FICO score bypasses these codes, which means they are viewed neither positively or negatively. However, FICO will consider whether you were paying as agreed prior to and post modification. If a lender reports a loan modification as “paying under a partial payment agreement,” this will be a negative for your FICO score.
The Higher Your Score, the Bigger the Plunge
Those with higher scores lost more points in each of the various events. For example, a consumer with a starting score of 820 had a 100 point drop with just one 30-day late payment. A consumer with a score of 680 dropped only 80 points with a 30-day late payment. If the same consumers filed for bankruptcy, the first (starting score of 820), dropped about 270 points to end up with a score of 550. The second (starting score of 680) dropped only about 150 points, to end with a score of 530.
Each Case Is Individual
Keep in mind that these simulated numbers were just that, simulated. Each person’s situation is different. Your score may drop more or less than the average consumer based on your prior credit history and how the delinquency or negative event is reported.
To learn more about the individual factors that influence your FICO score after a negative event, see Nolo’s article Which Is Worse for Your FICO Score: Bankruptcy, Foreclosure, Short-Sale, or Loan Modification?
For tips on rebuilding your credit, visit our Credit Repair topic area.