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Scoring seems unfair

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Anonymous
Not applicable

Scoring seems unfair

I was doing real well and had credit cards that I paid off but never missed a payment. My score was sitting at around 700 or above. In 2016 I ran into some trouble and had to pay for school so I missed payments on my credit cards to achieve this. I knew that it would hurt my credit but I had to finish school. My credit dropped tremendously down to around 530 to 550. I have worked the past year to get these bills back to a good standing, paying off all but two of them. I have maintained on-time payments on all of my bills since that time and my score has only raised back to 636 (EQ). I was playing around with the simulator and noticed that 1 missed payment will drop your score 75 points but making a set payment on time for 3 months only raises it 10 points. This does not seem right. I understand that you are penalized for missing a payment, but maybe the reason so many people are in trouble with their credit and scores is due to this unfair scoring term. It should not take 2-3 times the amount of time to raise your score than it does to lower it. I'm continuing to work to rebuild my credit score but it is so frustrating because I cannot do the things I need to do to help it because of it. It's a catch 22. I have a plan to pay down the cards I do have but knowing that this will only give me around 50 points at best to pay them off is disconcerting. 

Message 1 of 33
32 REPLIES 32
Moneyklutz
Frequent Contributor

Re: Scoring seems unfair

First of all welcome to the Forums.

 

I'll encourage you to read everything you can here as time permits. The value in doing that will help you understand how credit scores are calculated and what to do and especially what not to do if you are seeking to improve them.

 

Credit scores and the manner in how they are calculated are actually quite fair in my opinion. Take 2 of your friends and loan them something (money, goods or services) with their promise to pay it back to you over a set period of time and manner. If one does that per the agreement, your trust in that person goes up and you'd likely loan them more in the future. If the other friend fails to to keep that agreement you most likely would not. Breaking an agreement of any sort brings distrust. 

 

Your choice to finish school and not pay your cards as promised caused your score to drop (perhaps you can blame life itself for not being fair to you at that moment but thats a whole 'nother conversation) The scoring models take that into account and do their best to predict that if you did it once... you'll most likely do it again. Making payments on time afterwards builds that trust back up but at a much slower rate vs. how fast you lose it. 

 

Credit scores are only reflections of our past decisions, quantified in a manner to help predict our future choices. The way in which they are calculated is not perfect and never will be, but looking back at all the different variations of FICO scoring shows to me that the powers that be are attempting to improve them.

 

 Learn from this experience... and be glad it happened in the early part of your life.

Message 2 of 33
expatCanuck
Super Contributor

Re: Scoring seems unfair

First, good for you for pursuing your education.  Hope that you were successful, and it gets you where you want to go.

 

As for the credit, well, it may not be fair, but it's consistent and impersonal.  I urge you to learn what there is to learn from the Rebuilding Your Credit section of the forum.

 

Me, I'm still paying for a 30-day late 6 years ago.  I'm in good shape financially, with a mortgage and home equity loan at good rates, and low card utilization , but I struggle to keep my scores above 725. (The TU score in my sig is better than the others because, for reasons that elude me, it no longer reports that 30-day late.)

 

So ... after a few years, a late won't prevent you from getting a mortgage or applying for a card, but it's really hard to hit 800 with that late (at least, that's been my experience).

 

In a year, I expect I'll be in the 800 neighborhood.  Time & good credit habits.  Mostly time.  Bottom line: you can rebuild with baddies, but have to be smart, disciplined & patient about it.  Oh yeah - be sure to research goodwill letters.


2023 Goal: save 3 months' net income

Starting FICO8: 666 (give or take a FICO)
[ Last INQ 12-Feb-2024 ]
EQ8415 INQ (Auto, CC, HELOC, 2 mort)7y2m
EX8125 INQ (2 CC, 2 mort, HELoan)6y11m
TU8294 INQ (3 CC, 1 mort)6y6m
5/243/12AoYA 0m | AoOA 23y6m~3%
Message 3 of 33
Anonymous
Not applicable

Re: Scoring seems unfair


@Anonymous wrote:

 

I'm continuing to work to rebuild my credit score but it is so frustrating because I cannot do the things I need to do to help it because of it. It's a catch 22. I have a plan to pay down the cards I do have but knowing that this will only give me around 50 points at best to pay them off is disconcerting. 


It sounds like you feel like there are things you need to do to improve your score, but that these very things are things that your low score prevents you from doing.  Thus your use of the term Catch-22.

 

Can you help us understand better what you believe these things might be?

 

The big things that will help your score are making all future payments on time, paying off all your CC debt, and then (after you have established a record of several months of on-time payments) attempting to get the derogs removed via Goodwill Letters.  None of the problems you had in your past will prevent you from doing those three things. 

Message 4 of 33
Anonymous
Not applicable

Re: Scoring seems unfair

Good post from Moneyklutz above.

 

FICO scores are all about predicting risk.  Anyone that has missed a payment once is statistically more likely to do it again in the future, especially if it was recent.  The longer ago it was, the less meaningful it is and the less it will impact your risk factor (score) today.

 

One mistake is all it takes.  Think of it like a relationship.  For years two people can build trust with one another and everything is great.  All it takes is one mistake where one person cheats on the other and trust immediately drops from 100 to 0.  Three months down the line, that 0 won't be back at 100.  10-20?  Perhaps, but tough to quantify.  A year from now?  Maybe 50 with perfect behavior and trust-building actions over that time.  3-5 years from now, maybe 75? 

 

According to FICO, it takes 7 years to be back at 100.

Message 5 of 33
Glen_M
Frequent Contributor

Re: Scoring seems unfair


@Anonymous wrote:

... It should not take 2-3 times the amount of time to raise your score than it does to lower it. ... 


Why?

 

It's all about patterns of behavior.  A record of failure to pay is an indicator of probability.  Failing to pay in the past means a person is statistically more likely to fail to pay again in the future.  It takes a lot of good behavior payment history to counter each mistake, and some mistakes take years of good payment behavior to counter them.



Message 6 of 33
Anonymous
Not applicable

Re: Scoring seems unfair

I agree with Glen.

 

Another valid comparison IMO would be your credit report (record) with a crimal record or history.  One can have a fantastic history with no criminal infractions, even a parking ticket, but if they do wrong, all that great history goes out the window.  Sure something like a speeding ticket or a petty crime may result in a slap on the wrist the first time, but a first time major felony like armed robbery or selling narcotics is going to be very impactful and stay on that record for a long time.  The same goes for multiple smaller crimes.  While one may yield a slap on the wrist, several smaller crimes would be viewed more similar to one major crime.  The point here is that positive history (whether it be with respect to credit or crime) is a great thing, but it can easily be overshadowed by anything negative and that negative will resonate for quite some time depending on its severity or frequency.

Message 7 of 33
Kree
Established Contributor

Re: Scoring seems unfair

I would like to point out that this is not a "do good" versus "do bad" thing.  Paying on time isn't A+ behaviour. Paying on time gets you a C.  Its run of the course expected behaviour. No attaboys in credit. Similarly, paying late isn't so bad.  People pay late all the time without credit score penalties.  Paying 30 days late. Paying 60 days late. 90 Days Late. That is the penalty.  You aren't paying late at these points. You are missing entire payments. And chances are you never even called them.

 

Pay 5 days late? no one cares, you might not even have a late fee. But going on someone else example from earlier.  You lend a friend some money, and then they not only don't pay you for 2 months, they stop returning your phone calls."Hey bob is everything okay?"  "radio silence."

 

But you know they are out there, maybe you saw them across the street at mcdonalds.  (CreditCard usage will let your creditor know you are still alive and ignoring them)  How dare bob go to mcdonalds when he still owes you last months payment?  Why didn't bob atleast text? 

Message 8 of 33
Anonymous
Not applicable

Re: Scoring seems unfair

Lots of folks giving very helpful illustrations for helping our OP understand why his score could be a hurt for quite a while by going for a number of months with no payments -- and why making payments won't quickly solve his scoring problem.  (Though it will indeed help part of the problem -- since the score drop is the result of both the bad history and the high CC balances.  Paying off the debt is a big step in the right direction.)

 

Puzzling over why six months of on time payments isn't fixing his problem was only half of his concern.  The other half was a practical interest in taking steps moving forward.  His belief was that he was in a Catch-22 -- the steps needed to fix his score were all things for which he needed a high score to begin with.  This is in fact not so.  I hope we hear back from our OP and can help him clear up that confusion.  As far as I can tell, all of the strategies for rebuilding his score are open to someone with a bad score: e.g. paying off his cards, making all payments in the future on time, etc.  The only exception would be goodwill letters for derog removal.   That particular strategy may be best employed after he has paid off his debt and and has a history of making perfect payments for at least 13 months. 

Message 9 of 33
Anonymous
Not applicable

Re: Scoring seems unfair

There are hundreds of predictive data points available online that actually can show you why missing a payment is such a predictor of default.  Having ONE recent late payment increases your predictive risk of bankruptcy by something like 800-1000%, so FICO scores help lenders avoid high risk individuals.

 

The same is true with high credit card utilization -- people who have very high utilization are 700-800% more likely to file for bankruptcy.

 

The entire "I had to miss payments" reasoning is why I tell folks to have a bigger savings account than credit limits, but no less in savings than 5X your credit cards' minimum payment dues if they were maxed out.  If you just have $500 in emergency payment accounts, your risk of default/missing a payment drops significantly.  I'd focus on building your emergency savings than worrying about your late payments -- as long as they're only 30D or 60D lates, they don't hurt as much in 3 years.

Message 10 of 33
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