The FICO credit score is a standard consumer credit risk analyzer in the financial industry, used by more than 90% of all major lenders. Although credit score calculation criteria {(i.e. payment history (35%), amounts owed (30%), length of credit history (15%), type of credit (10%), and new credit inquiries (10%)} is public knowledge, the exact formula is a tightly guarded secret. However, we now have a bit more insight into how FICO evaluates mortgage delinquencies.
FICO, recently released a study that showed the effects of different types of mortgage delinquencies on representative credit bureau profiles of consumers scoring 680, 720 and 780. The focus was on consumers whose credit characteristics (e.g. utilization, delinquency history, age of file) were typical of the three score points considered.
The following tables from FICO show the credit score drops after specific delinquencies and the amount of time it generally takes for credit scores to rebound to pre-delinquent levels:
IMPACT TO FICO SCORE:
|
|
Consumer A
|
Consumer B
|
Consumer C
|
|
Starting FICO Score
|
620
|
720
|
780
|
|
FICO score after these events:
|
|
|
|
|
30 days late on Mtg
|
600-620
|
630-650
|
670-690
|
|
90 days late on Mtg
|
600-620
|
610-630
|
650-670
|
|
Short Sale /Deed-in Lieu /Settlement (No deficiency balance)
|
610-630
|
605-625
|
655-675
|
|
Short Sale (with deficiency balance)
|
575-595
|
570-590
|
620-640
|
|
Foreclosure
|
575-595
|
570-590
|
620-640
|
|
Bankruptcy
|
530-550
|
525-545
|
540-560
|
ESTIMATED TIME FOR FICO SCORE TO FULLY RECOVER
|
Consumer A
|
Consumer B
|
Consumer C
|
| Starting FICO Score | 620 | 720 | 780 |
| Time For FICO score to recover after these events: |
|
|
|
| 30 days late on Mtg | 9 months | 2.5 years | 3 years |
| 90 days late on Mtg | 9 months | 3 years | 7 years |
| Short Sale /Deed-in Lieu /Settlement (No deficiency balance) | 3 years | 7 years | 7 years |
| Short Sale (with deficiency balance) | 3 years | 7 years | 7 years |
| Foreclosure | 3 years | 7 years | 7 years |
| Bankruptcy | 5 years | 7-10 years | 7-10 years |
NOTE: Estimates assume all else held consistent over time (e.g. no new account openings, no new delinquencies, similar outstanding debt).
Here are some other findings from the study:
- The magnitude of FICO score impact is highly dependent on the starting score.
- There's no significant difference in score impact between short sale/deed-in-lieu/settlement and foreclosure.
- While a score may begin to improve sooner, it could take up to 7-10 years to fully recover, assuming all other obligations are paid as agreed.
- In general, the higher starting score, the longer it takes for the score to fully recover.
- Even if there's minimal difference in score impact between moderate and severe delinquencies, there may be significant difference in time required for the score to fully recover.
Please note, these numbers are only representative figures - every person's credit history is different and mortgage delinquencies will have different effects on credit scores that may not match the results of this particular research.
While this information may not detail the effects on a person's unique credit profile, it gives a good idea of how mortgage delinquencies can impact credit profiles. Distressed homeowners can use this data to evaluate their different options and resulting effects and make an educated decision with regards to handling their mortgages.
Jennifer Hamby is the Executive Vice President of My Credit My Future. Hamby has worked in the financial sector since 1996 & is dedicated to educating consumers on financial responsibility and the impact it has on one's credit score. My Credit My Future offers a variety of resources that help consumers make smart decisions with regard to their personal finances. Find out more at www.mcmf.net. 
