How Many Points Are Late Payments Worth In Your Credit Score?
I had so much fun writing my article about how many points inquiries are worth that I figured I’d follow up the theme and write about how many points delinquencies are worth. So, finally, here’s the answer to how many points those delinquencies are worth.
That’s right, delinquencies are worth zero points in your credit score. Delinquencies, like inquiries, do not have independent value. So, 30 day lates are not worth 10 points, 60 day lates are not worth 15 points and 90 day lates are not worth 20 points. Actually, it might be better to say that delinquencies are not worth negative points because the assumption is probably that they LOWER your score.
It is entirely inappropriate and incorrect to say that “X” lowered my score by “Y” points. That’s not what happened. And it has become very clear to me that however many times I try to explain this it’s never going to get through some heads so it looks like I’ll have to use analogies.
Golf – There’s a rule in golf that you’re not allowed to move your ball or you’ll get a penalty. So, if you hit your ball into some pine needles and you try to move some of the pine needles and the ball moves as a result…that’s a penalty. You may not have moved any of the pine needles that were touching the ball but you may have moved one that was sitting on or under one that WAS touching the ball. Now, back to credit scoring. The late payment didn’t lower your score but because adding a late payment to a credit report moves other things around it caused your score to be different than it was before the late payment was added. If your score is 50 points lower it’s not as if the new late payment lowered your score 50 points…but because the addition of that item caused a different evaluation of EVERYTHING on your credit reports (scorecard hop) the new reality for you is 50 points lower.
Jenga – You know the game Jenga? It’s a 3×12 stack of blocks and the object of the game is to remove blocks from the bottom and stack them back on top. The more blocks are removed from the bottom and restacked the less stable the entire thing becomes. Eventually you’re going to remove the wrong block and whole thing comes crashing down. By removing one of the blocks at the bottom you caused the entire structure to become unstable to the point of collapse. It certainly didn’t become unstable because you removed that block though. It became unstable because of the aggregate of blocks removed. Your block just happened to be the straw that broke the camel’s back. Same thing with scoring…if you keep adding derogs to a credit report it becomes so polluted that your score just collapses. It wasn’t one late payment…it was the aggregate. NOTE: I am VERY good at Jenga.
Ice Machines – Go to your ice machine and start taking out single pieces of ice while trying NOT to move any other pieces. Impossible. So many of the pieces are frozen together or are stacked on top of each other that you may get away with removing one or two but that’s about it. Like my Jenga analogy above, some pieces are dependent upon other pieces in order to remain in place. Removing one or two pieces causes havoc among the entire ice tray. Same with scoring. Adding one or two items (or removing one or two items) can cause a re-evaluation of all of the other items (ice-cubes) and thus a different score outcome.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.