The FICO Seven Deadly Sins
I often reference the “FICO Seven Deadlies” in my articles and interviews but it just occurred to me that I’ve never actually written about them as one consolidated list. This is important because credit rules our lives. If you have good credit you can do many things, inexpensively. However, if your credit is bruised or broken, you’ll have a harder time functioning effectively in the world of personal finance. So what are these seven deadlies?
Significant and Serious Late Payments – 30 days, 60 days, 90 days late…and worse. Some believe that a 30 day late payment is benign to your credit scores. That’s simply not true. It’s not a “credit killer” but it’s still a bad deal. Late payments can remain on credit reports for 7 years.
Collections – When a lender can’t convince you to pay your bills they’ll often enlist the help from a 3rd party collection agency. If this happens then the collection agency will likely report the collection account to the credit bureaus. These can remain on credit reports for 7 years.
Public Records – Bankruptcy, Tax Liens, Judgments – There is no “good” public record as it pertains to credit reporting. They’re all bad. Bankruptcies can remain on your credit reports for 10 years. Judgments can remain for 7 and unpaid tax liens, indefinitely.
Settlements – This seems to be a very popular thing to do right now. Despite the fact that the lender has been paid, they’ve only been paid a portion of what you actually owe them. Credit cards and other debts can be settled. Mortgage short sales are going to fall into this category because this is how they’re reported to the credit bureaus. These can remain on credit reports for 7 years.
Charge offs – This is when a lender throws in the towel and acknowledges, in an accounting sense, that they aren’t going to get paid. These can remain on credit reports for 7 years.
Repossessions – Aren’t paying your car, boat or motorcycle loans? That knock you didn’t hear at your door was the repo man legally stealing your car while you were asleep, at work or grocery shopping. These can remain on credit reports for 7 years.
Foreclosures – Tired of paying your mortgage or just can’t afford it any longer? If you choose to stop paying your lender is going to want the house…without you in it. If you don’t go voluntarily they’ll likely send the sheriff to you home to escort you out. This is called foreclosure. These can remain on credit reports for 7 years. This is also going to include forfeiture of deed in lieu of foreclosure as well.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.