One of the most common questions people ask about their credit scores is, “How many points will ‘X’ lower my credit scores?” You may wonder how many points an inquiry or a new collection account will lower your credit scores when it hits your reports. The answer isn’t that simple because credit scores work very differently than most consumers believe.
An individual item on a credit report isn’t worth a specific number of points. For example, when a new late payment is reported on your credit you don’t automatically lose a specific number of points. Late payments absolutely have a negative impact on your credit scores of course, but not how you may think. Here is a look at how the credit scoring process works when it comes to late payments:
Credit Scoring Models Ask Questions of Your Credit Report
First, it is important to understand that your credit scores are not calculated point by point based on each item on your credit reports. Instead, groups of items have a particular weight or value. The way credit scoring models like VantageScore and FICO determine the value of a group of items (or the value of the absence of a group of items) is by asking questions. For example, one question a scoring model might ask of your credit reports is “When did you last miss a loan or credit card payment?”
Ranges or “Classing”
Your credit report’s answer to the question “When did you last miss a loan or credit card payment?” will fall into a particular range (also referred to as a bin or class). Those ranges may be along the lines of the following:
“I have never missed a payment.”
“I have missed a payment in the last 6 months.”
“I missed a payment 6-12 months ago.”
“I missed a payment 1-2 years ago.”
“I missed a payment more than 2 years ago.”
Each range is weighted with a certain number of points. These points are added together to create your total credit score. If you’ve never missed a payment, you would receive the highest number of points available. However, if have late payments within the last 6 months then you would receive a lower number of the available points.
Building from the Bottom Up
Credit scores are built from the ground up. This means that your scores begin at the bottom of the spectrum (300) and can build up to the top (850). Points are never deducted from your credit scores for specific items or even specific groups of items that appear on your credit reports. Instead, when negative items like new late payment appear on your credit reports, you may earn fewer points.
The effect is ultimately the same: lower credit scores for you. But, understanding the process of how your credit scores are truly built enables you to take charge of your credit in the future.
So How Many Points Does a Late Payment Lower Credit Scores?
The answer to the question above, just like most other credit score related questions, is always going to be “It depends.” Credit scoring models are going to look at your reports as a whole to determine how much of an impact a new late payment will have on your credit scores. A single new late payment on an otherwise clean credit report could have very serious credit score consequences. However, the addition of a single late on a credit report that is already plagued with other delinquencies and derogatory items would be less severe and possibly meaningless. Either way, if you ever want to achieve truly great credit scores then there is no question that late payments should be strictly avoided.