The credit-card companies have long had suggestions for how to raise your credit score, but how badly does your credit suffer when things go wrong?
The surprising answer is that those who’ve had excellent credit are penalized more heavily than those with poor credit when something goes wrong.
According to finance guru Liz Pulliam Weston, here are approximate examples of the penalty for credit scores of a mediocre 680 and an excellent 780:
• Be 30 days late on a payment: a 680 score will get a penalty of 60 to 80 points, where a 780 score will get a penalty of 90 to 110 points.
• Max out your card: a 680 score will get a penalty of 10 to 30 points, while a 780 score will get a penalty of 25 to 45 points.
• Suffer a foreclosure on your home: a 680 score will get a penalty of 85 to 105 points, where a 780 score will get a penalty of 140 to 160 points.
• Agree to debt settlement: a 680 score will get a penalty of 46 to 65 points, where a 780 score will get a penalty of 105 to 125 points.
• File for bankruptcy: a 680 score will get a penalty of 130 to 150 points, where a 780 credit score will get a penalty of a whopping 220 to 240 points.
There are some significant differences between those with 680 and 780 credit scores, one being longevity. Those with the higher credit score likely have a number of cards and a long credit history, possibly 15 years or more. The lower score is likely that of a person with only eight years of credit history.
Use of credit availability matters, too. Someone with a high credit score likely uses less than 25 percent of the availability, compared with up to 50 percent use by someone with the lower score.
This is where not closing your unused accounts comes into play: The minute you close an account, your total available credit goes down and the percent of credit you’re using on other cards rises.
If you are among the many who are seeing credit-card interest rates suddenly soar for no apparent reason, don’t close the accounts. Pay them off quickly, and then don’t use them.
Uffington does not personally answer reader questions, but will incorporate them into his column whenever possible. Write to him in care of King Features Weekly Service, P.O. Box 536475, Orlando, FL 32853-6475, or send e-mail to columnreply@gmail.com.
The surprising answer is that those who’ve had excellent credit are penalized more heavily than those with poor credit when something goes wrong.
According to finance guru Liz Pulliam Weston, here are approximate examples of the penalty for credit scores of a mediocre 680 and an excellent 780:
• Be 30 days late on a payment: a 680 score will get a penalty of 60 to 80 points, where a 780 score will get a penalty of 90 to 110 points.
• Max out your card: a 680 score will get a penalty of 10 to 30 points, while a 780 score will get a penalty of 25 to 45 points.
• Suffer a foreclosure on your home: a 680 score will get a penalty of 85 to 105 points, where a 780 score will get a penalty of 140 to 160 points.
• Agree to debt settlement: a 680 score will get a penalty of 46 to 65 points, where a 780 score will get a penalty of 105 to 125 points.
• File for bankruptcy: a 680 score will get a penalty of 130 to 150 points, where a 780 credit score will get a penalty of a whopping 220 to 240 points.
There are some significant differences between those with 680 and 780 credit scores, one being longevity. Those with the higher credit score likely have a number of cards and a long credit history, possibly 15 years or more. The lower score is likely that of a person with only eight years of credit history.
Use of credit availability matters, too. Someone with a high credit score likely uses less than 25 percent of the availability, compared with up to 50 percent use by someone with the lower score.
This is where not closing your unused accounts comes into play: The minute you close an account, your total available credit goes down and the percent of credit you’re using on other cards rises.
If you are among the many who are seeing credit-card interest rates suddenly soar for no apparent reason, don’t close the accounts. Pay them off quickly, and then don’t use them.
Uffington does not personally answer reader questions, but will incorporate them into his column whenever possible. Write to him in care of King Features Weekly Service, P.O. Box 536475, Orlando, FL 32853-6475, or send e-mail to columnreply@gmail.com.