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The Top 5 Credit Score Killers
What you don't know can hurt you
Martha C. White
Mistake #1: Foreclosure. "I foolishly believed my attorney (and the
rising real estate market) when I didn't force my former husband to
refinance or sell our house during our divorce proceedings, and [he] left
my name on the mortgage," Cynthia Burnham of Descanso, California
says. As a result, when her ex stopped making payments, the bank came
after her, and her credit score took a beating.
Burnham is not exactly sure where her score stands today, but she
recalls that it was in the high 700s before the fiasco began.The lower
score hit her most severely when it came to her credit limits; she had one
card's limit slashed from $14,000 to $2,000, while another one went from
$5,000 to $2,000. "I've always been proud to maintain my credit as
excellent," Burnham says. Having to deal with the fallout once her credit
wasn't good anymore left her "irritated and angry."
Shane Fischer of Winter Park, Florida, is also struggling with the fallout
of a low credit score due to foreclosure. "The foreclosure killed any
chance I have of getting a new car loan or even a credit card," Fischer
says. "My car is getting older, and I'd like to consider trading it in, but with
my bad credit, no bank will give me the time of day."
Not surprisingly, foreclosure is the big kahuna when it comes to actions
that can sink your credit score. According to Barry Paperno, consumer
operations manager at FICO, "In addition to a foreclosure preventing
someone from obtaining a new mortgage for at least a couple of years --
regardless of the score – this person could expect to lose anywhere from
80 to 160 points, depending on his score level prior to the foreclosure."
Ouch.
Foreclosure is a "scarlet letter," adds Gary Nitzkin, a debt-collection
lawyer in Southfield, Michigan.
Mistake #2: Being a guarantor on someone else's loan. Nitzkin, who is
hired by creditors to collect on debts, says this is another no-no that's
sure to take a bite out of your credit score. If the person you're
guaranteeing the loan for - a child, close friend or other relative -
defaults on the loan, you could be responsible for paying it back all at
once. Not only would this likely cause significant financial hardship for
you, you potentially could see your credit score plummet by as much as
100 points.
Mistake #3: Making a late payment on a credit card debt. While
foreclosure and debt settlements might sound like drastic steps, you may
be surprised to learn that the next biggest credit-killer is actually
something almost all of us have done from time to time. Making a late
payment on a credit card debt doesn't seem like such a bad thing -- until
you learn just how much it can affect your credit score.
As Nitzkin explains, "If a consumer has a [score of] 750 or above and
they're late with just one payment, their score can drop to 650." However,
FICO's Paperno adds, someone who already has a few late payments on
their report as a result of previous late payments would be more likely to
lose less (somewhere between 60 and 80 points).
Mistake #4: Maxing out one of your credit cards. While it may be
surprising to find out a late payment can drop your score anywhere from
60 to 100 points, you might be even more shocked to learn that even
actions that are allowed by lenders can hurt your score. "The act of
maxing out a single card could drop your high FICO score by as much as
50 points," Paperno says. People with lower scores could see theirs drop
by up to 30 points, although it's likely they'd have much lower minimums
than their high-score counterparts.
Mistake #5: Settling with a debtor for less than the amount owed. This is
another major strike against your score that Paperno says can drop your
credit score by as much as 160 points. While we've written about people
who've settled their debts for less and found the option to be a godsend,
it's important to keep in mind that this isn't an action without
consequences. Reaching an agreement with a lender to settle a debt for
less than what you owe can certainly free you from a crushing debt, but
the trade-off is that you'll have a lower credit score to show for it.
Martha C. White
Mistake #1: Foreclosure. "I foolishly believed my attorney (and the
rising real estate market) when I didn't force my former husband to
refinance or sell our house during our divorce proceedings, and [he] left
my name on the mortgage," Cynthia Burnham of Descanso, California
says. As a result, when her ex stopped making payments, the bank came
after her, and her credit score took a beating.
Burnham is not exactly sure where her score stands today, but she
recalls that it was in the high 700s before the fiasco began.The lower
score hit her most severely when it came to her credit limits; she had one
card's limit slashed from $14,000 to $2,000, while another one went from
$5,000 to $2,000. "I've always been proud to maintain my credit as
excellent," Burnham says. Having to deal with the fallout once her credit
wasn't good anymore left her "irritated and angry."
Shane Fischer of Winter Park, Florida, is also struggling with the fallout
of a low credit score due to foreclosure. "The foreclosure killed any
chance I have of getting a new car loan or even a credit card," Fischer
says. "My car is getting older, and I'd like to consider trading it in, but with
my bad credit, no bank will give me the time of day."
Not surprisingly, foreclosure is the big kahuna when it comes to actions
that can sink your credit score. According to Barry Paperno, consumer
operations manager at FICO, "In addition to a foreclosure preventing
someone from obtaining a new mortgage for at least a couple of years --
regardless of the score – this person could expect to lose anywhere from
80 to 160 points, depending on his score level prior to the foreclosure."
Ouch.
Foreclosure is a "scarlet letter," adds Gary Nitzkin, a debt-collection
lawyer in Southfield, Michigan.
Mistake #2: Being a guarantor on someone else's loan. Nitzkin, who is
hired by creditors to collect on debts, says this is another no-no that's
sure to take a bite out of your credit score. If the person you're
guaranteeing the loan for - a child, close friend or other relative -
defaults on the loan, you could be responsible for paying it back all at
once. Not only would this likely cause significant financial hardship for
you, you potentially could see your credit score plummet by as much as
100 points.
Mistake #3: Making a late payment on a credit card debt. While
foreclosure and debt settlements might sound like drastic steps, you may
be surprised to learn that the next biggest credit-killer is actually
something almost all of us have done from time to time. Making a late
payment on a credit card debt doesn't seem like such a bad thing -- until
you learn just how much it can affect your credit score.
As Nitzkin explains, "If a consumer has a [score of] 750 or above and
they're late with just one payment, their score can drop to 650." However,
FICO's Paperno adds, someone who already has a few late payments on
their report as a result of previous late payments would be more likely to
lose less (somewhere between 60 and 80 points).
Mistake #4: Maxing out one of your credit cards. While it may be
surprising to find out a late payment can drop your score anywhere from
60 to 100 points, you might be even more shocked to learn that even
actions that are allowed by lenders can hurt your score. "The act of
maxing out a single card could drop your high FICO score by as much as
50 points," Paperno says. People with lower scores could see theirs drop
by up to 30 points, although it's likely they'd have much lower minimums
than their high-score counterparts.
Mistake #5: Settling with a debtor for less than the amount owed. This is
another major strike against your score that Paperno says can drop your
credit score by as much as 160 points. While we've written about people
who've settled their debts for less and found the option to be a godsend,
it's important to keep in mind that this isn't an action without
consequences. Reaching an agreement with a lender to settle a debt for
less than what you owe can certainly free you from a crushing debt, but
the trade-off is that you'll have a lower credit score to show for it.