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September 10th, 2009 (Modified on November 10th, 2009)

Credit Score: Separating Fact from Fiction



Credit conditions are tight these days — getting a loan isn’t as easy, and may never be as easy, as it used to. That means your credit score and report may dictate whether or not you get a mortgage, car, credit card, student loan and more. With so much riding on good credit, it’s time to separate the facts from the fiction when it comes to your credit.

You may think that you have just one credit score, but in fact, you have several. Your FICO score — the credit rating system developed by Fair Isaac Corp. which can range from a dismal 300 to the pinnacle of 850 — is just one. The others are calculated by the three credit bureaus: Experian, Equifax, and TransUnion. Your exact credit score all depends on the type of lender requesting it and which credit bureau reports it.

How long does a late credit card payment stay on your credit history? How is your credit score even computed? The Wall Street Journal answers these questions and more as they separate the credit myths from the truth in their article titled “Credit Scores: What You Need to Know Now.”

Here’s just a sample of the myth busting:

I pay my card off every month, so I must be a low credit risk.

True, your financial habits are excellent. But they won’t affect your score. That’s because the credit bureaus don’t have a clue whether you pay your bill in full or carry a balance on your cards each month. All they know is the amount you owed on your most recent statement.

Instead, the crucial fact is how much available credit you have used. Steve Ely, president of personal-information solutions at Equifax, says you should keep your credit use to less than half your credit limit to minimize the impact on your score.

I was late on a payment, but the debt is now paid off. So I’m good, right?

Afraid not. The single most important factor in your score, accounting for 35% of the total, is whether you have paid your bills on time. One late payment will ding your score for up to a year, very late payments can hurt you for two or three years, and collections and bankruptcies can sting for up to seven years.

Click here to read “Credit Scores: What You Need to Know Now” in its entirety.

To read more articles from HSH on your credit score and credit report, be sure to read the following:
Loan Modifications Are Hurting Credit Scores
Should You Sign Up for a Credit Monitoring Service?
When Good Credit Won’t Mean Squat

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10 Responses to “Credit Score: Separating Fact from Fiction”

  1. Steve Says: September 10th, 2009 at 10:26 pm

    Federal Credit Bureaus? Do you have any idea what you are talking about?

  2. Steve Says: September 11th, 2009 at 7:12 am

    Actually under he current FICO Classic model a single 30 day late payment will impact your credit for 30-36 months before you fully recover the points lost.

  3. Tim Manni Says: September 11th, 2009 at 9:14 am


    If you disagree with the term “Federal Credit Bureaus” please share what you think they should be called…Does ‘credit reporting companies’ work for you?


  4. Tim Manni Says: September 11th, 2009 at 9:25 am


    Now I haven’t read too much on this since the beginning of the summer, but the newer, yet less utilized “FICO 08″ scoring model — as of May it was only being used by TransUnion — allows one late payment to affect your score less than it use to. For more, read “How Will the New FICO Formula Affect You.”


  5. Steve Says: September 13th, 2009 at 11:28 am

    “Federal” assumes that they are part of the goverment which couldn’t be further from the truth. They are 3 individual copmanies owned by family business such as Transunion or publicly traded companies. There is nothing federal about them. They are Credit repositories has hold of consumer credit data just as the lessor known Innovis.

  6. Steve Says: September 13th, 2009 at 11:36 am

    True FICO 08 does not give as much weight to a single 30 day late payment being reported on a consumer credit profile but since Experian just gave in and started offering it in August I am not aware of any major mortgage, auto or consumer financing company using it. Until FHAH, FNMA, FHLMC and HUD start accepting in AUS submissions it will not gain traction in the market place. I think providing current real world information rather then future hopes and wishes is the best course right now.

  7. Tim Manni Says: September 14th, 2009 at 1:43 pm


    I don’t see how we failed to provide “current real world information”? The point has been made that one late payment, under the current scoring, can impact your report for an extended period. I believe your interpretation that we provided “future hopes and wishes” pertains to our discussion surrounding ‘FICO 08′, which was only mentioned by us in the comment section, not in the story.


  8. Score That Loan | Economic Stimulus Plan Says: September 26th, 2009 at 1:31 am

    [...] Credit Score: Separating Fact from Fiction (hsh.com) [...]

  9. Mitch Says: October 25th, 2009 at 12:41 am

    Hi Tim,

    You know my position on this credit score fraud thing. These days, having a high credit score isn’t getting anyone anything either. It seems that banking nowadays is built more on relationships, and not really credit scores. And, the fact that a late payment will ding you in such a negative fashion is enough for me to say it’s a major league scam across the board.

  10. Tim Manni Says: October 26th, 2009 at 10:13 am

    Hey Mitch,

    I haven’t really ever considered the current credit score model as “fraud,” but I do agree it needs a makeover. Certain borrowers are getting an unfair shake in my opinion. And now with more than one formula being used, where’s the continuity?

    Who will step up to tackle this issue?


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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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