Maintaining A Healthy FICO Score

A FICO score is the numerical rating that indicates a borrower's creditworthiness. These days it has become more important than ever to know your FICO and to actively maintain the best possible score. FICO scores govern the price we pay for everything from loans to renting an apartment.

But there has always been a big secret about the way different situations affect your credit and how the scores are computed. What exactly happens to the score when you are late on a payment, file for bankruptcy, max out a credit card or use one of those debt settlement companies?

The scoring chart (below) provides a general guide to the effect each action has on your FICO. Keep in mind that each person's FICO is unique. Two people with a similar score are not treated in the same way - each FICO can change according to one's individual habits.

Let's say you applied for a $200,000 30-year mortgage, a five-year car loan and a credit card. Using this scenario, see the real dollar effect of credit mistakes:

You had a 780 FICO:

 1 - After a 30-day late payment, a car loan rate would rise 1% and cost $26 more per month.

 2 - After using a debt settlement arrangement, a mortgage could cost $109 more each month.

You had a 680 FICO:

 1 - 30-day late payment would end up costing $41 each month on a car loan.

 2 - 30 days late on a mortgage could be as much as $95 more per month.

 3 - After a debt settlement arrangement, you will no longer qualify for a credit card.

It can be difficult in these economic times to avoid these damaging decisions to maintain a healthy score, but it's still better to try to make minimum payments and monitor your credit.

With a little effort now, you can do yourself a great favor for your future.