@rembomanwrote:
This is a cautionary tale. Received an email yesterday from myfico.com about a precipitous drop in FICO score due to change in status of an account. Logged in - saw it was Audi payment (VWFS) 30 day late. So went online, saw it indeed had not been paid and subsequently paid it. The checking account that is in their system used for payments had between $47K and $637K in it for the entire duration of the 31 days in which the payment was not made, so financial duress had nothing to do with the late. I have been travelling extensively on business and my wife, who receives snail mail would normally have noticed something from Audi and said - "hey did you pay this", but she's recently been diagnosed with a serious health issue and is really just struggling to get through each day. Searched my email and NO notification from Audi FS warning of non-payment. No phone call to my cell listed in their system either. In any case, called VWFS and they stated their policy is NO EXCEPTIONS EVER for any circumstance, which I understand is their prerogative under CRA. The REALITY is that I have never been in a better financial position in my life, the risk of default has never been lower. With a BS in Finance from an accredited university and 20+ years experience owning a business, I understand risk assessment and I have a good understaning of the FICO algo. I learned today that FICO has some fatal flaws that render it an ineffective risk assessment tool in some cases (ie my son, in college, now has a significantly higher FICO score than I, yet he is a far greater risk for default). So the lesson is, one 30 day late can have INCREDIBLY HUGE impacts on your life due to it not accurately reflecting the real risk. It can cost you tens of thousands of dollars, keep you in your current house for years more than you had planned, etc. I have no need for additional credit as I move toward retirement other than relocation. Since I will be making over $400,000 this year and for the next few years based on existing contracts, we planned to sell our house in CA and move to a state with no or low state income tax. Now that is not possible as we will not qualify for a home loan at a decent rate with our new FICO, so we will be paying the CA income tax for at least the next 2-3 years as the "baddie" recedes. Our inaccurate FICO score does help the big lenders however, as FICO provides them with the opportunity to realize a higher rate of return than the ACTUAL RISK would warrant.
The intent of FICO is to assess credit risk, not financial health. Someone can have all the money in the world, but if they do not pay their debts, they're a credit risk. You missed a payment, and it arrived at the conclusion that you do not always pay your debts on time and dropped your score as a result.
The algorithm is indifferent about the human aspects of why payments are missed, as it should be. There's checks and balances in a human form, in this case by means of someone from VWFS who can pull back the late from your report should they deem the reason it was missed exceptional and very unlikely to happen again.
The impact of a single 30-day late has also been a bit overstated. Many people are able to get the best interest rates and continue with their lives just fine with a 30 day late or worse. If a single 30-day late was enough to deny you good rates or a mortgage altogether, I would contend you didn't have an excellent report in the first place and the 30-day was the metaphorical straw that broke the camel's back.
