Okay, so if you’ve done any research, you know that filing Bankruptcy has the biggest negative impact on your credit score. You also know that Debt Settlement does hit your credit score (but see below for more on that).
We’ve been in finance and the credit scoring game for a long time. When you review more than 500 credit reports a year, you get a really good feel for what makes the scoring models tick, fact vs. fiction, etc.
However, since the FICO “formula” is as closely guarded as Colonel Sanders’ 11 Herbs and Spices, our “feel” is all we had. Although we were always close with our estimates, I hated the fact that Fair, Isaac, & Co. (aka FICO) kept that secret to themselves.
Just a couple days ago in a victory for the little guy like you and me, they released “FICO Damage Point” information. Although there are still many other parts to the overall FICO score, this is great info! There is an excellent, detailed write-up on Yahoo! Finance, and I suggest you read it.
Two things to think about here:
1. The impact that a bankruptcy can have on your credit score…versus the impact that a debt settlement program can have on your credit score…versus the impact that having high credit card balances has. For example – how many maxed-out credit cards does it take to equal the same credit score hit that debt settlement causes? Less than you thought, huh? Also, if you are maxed-out or close to it, your score will be down for many years (10? 15? 20+? if just paying minimum payments) until you can get it down below the score impact threshold.
2. Look at the difference in Damage Points they’ll hit you with based on nothing except your current credit score. While we knew this was the idea, I’ll admit that it is a larger spread than we even thought it was. If you have a good credit score of 680 (but just not an excellent score of 780) your credit score will suffer much less if you enter a debt settlement program, declare bankruptcy, or any of the other things on the list.
If you haven’t pulled your credit lately, we can help you do that for free or at least help you get a discount (not through us, directly with the bureaus – no markup or anything).
Does this new data that FICO just released match up with what you’ve seen on your own credit report? Talk back and let us know!
Sincerely,
Greg
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