Can a bad credit entry by quantified on a credit score?

September 22, 2012 | By

The empirical impact of a bad credit entry on a credit score is not measurable.

In FICO's summary, they say: "The importance of any factor depends on the overall information in your credit report." This means that there's no perfect way to predict what variable will change the weight given to any of the five scoring elements, which is why FICO's algorithm is often referred to as the "black box." However, certain generalizations can be drawn, and, with respectable accuracy, a range of point change can be roughly predicted for many of the possibilities, particularly those involving payment history. After all, it's this category that can move a score very quickly-and in ways that aren't subtle. That's why it's so important to remove bad credit entries by performing self credit report repair.

FICO states that "the importance of any factor depends on the overall information in your credit report." As I've shown, FICO uses stair-stepping scorecards, which are assigned to people based on many factors and which can change with a slight modification of credit report data. Any extreme entry (a recent bankruptcy, for example) can skew a person's score by placing him or her into a different, undesirable initial scorecard. And since the importance of any one factor in determining your score changes as the information in your credit report changes, it's impossible to say exactly how important any single factor is in determining your score. What's important is the mix of information, which varies from person to person and for any one person over time.

This makes perfect sense. Someone with very few accounts, for example, may be more negatively impacted by a late payment than someone with many accounts. Likewise, someone with new credit may be more negatively impacted by lateness than someone with no new credit. Keep this in mind when trying to raise your credit score. Of course, removing anything recently negative will always help some and will often help a great deal. I've seen one BestCredit reader with a 12-year credit history remove one 30-day late installment payment that was 18 months old—her only adverse entry—raising her FICO credit score 40 points, from 638 to 778! Now that's money.

Bad credit entries and their relative affect will dictate removal priorities.

When disputing negative entries on your credit report in an effort to have them removed, you will have to exert a certain amount of time and effort for each item, and the priority you give to each adverse entry will vary according to your situation. Some entries may be more severe than others on their face; for instance, a paid judgment that's three years old may look more adverse that a late payment within the last 60 days. Yet the latter will impact a score far more. If you want to obtain a loan in the near term, you might consider targeting entries that affect your score the most. However, this may not always be possible, since different factors may play into the probability for removal, such as whether money is owed or not. This is outlined in my book and is what I call Debt Fusion, which combines credit repair and debt negotiation. Table 2 shows how various negative items rank in terms of their general impact on a credit score.

General Affect on FICO® Score by Severity of Public Record or Tradeline
LOW MEDIUM HIGH
  • Bankruptcy 3+ years
  • Paid Lien 3+ years
  • Paid Judgment 3+ years
  • Paid Collection Account 3+ years
  • Paid Charge-Off 3+ years
  • 30+ late 2+ years
  • 60+ late 2+ years
  • 90+ late 2+ years
  • 120+ late 2+ years
  • 3+ inquiries < 1 year
  • 4+ inquiries < 2 years
  • Multiple Late 3+ years
  • Bankruptcy 2- years
  • Paid Lien 2- years
  • Paid Judgment 2- years
  • Paid Collection Account 2- years
  • Paid Charge-Off 2- years
  • 30+ late < 180 days
  • 60+ late < 180 days
  • 90+ late < 180 days
  • 120+ late < 180 days
  • 4+ inquiries < 1 year
  • 6+ inquiries < 2 years
  • Multiple Late 1-2 years
  • Bankruptcy 1- year
  • Unpaid Lien
  • Unpaid Judgment
  • Collection Account
  • Current Late
  • Charge-Off
  • 30+ late < 60 days
  • 60+ late < 60 days
  • 90+ late < 60 days
  • 120+ late < 60 days
  • Multiple Late 1- year

Table 2.

Again, keep in mind that it's not possible to determine what single entry is worse than another on a FICO score; this is just my opinion of what can be generally expected based on anecdotal evidence. Again, since the severity of a mark is dependent on score-cards and algorithms, each item's impact can shift up or down, depending on other factors that have nothing to do with payment history.

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