December 16,2008
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Ever-changing CC Approval Climate, Pt. 3
– Reverse or Forward; Your Choice.Remaining on that last point a few moments (paying credit cards on time) because it's so important, let's take a moment to examine how easy it is to fall down hill. Recall in the last two examples the difficulty of shifting sufficient debt load ratios to gain FICO points. The best was coming up with a spare $2,000 to pay down the balance. Worth, maybe 40 FICO points and much nicer options. How elastic are missed credit card payments? In an average scenario where a person has managed to reach the FICO 735 level and has a clean record on all credit card accounts. Then, they miss one payment on one account. Unless that person can plead mercy from the lending bank to make it right and have the bank reverse the reporting quickly (sometimes they will), that one hit can take away a huge 50 points from that person's rating. A big hit, considering that 40 points were so hard to gain. Elasticity here depends on bad your rating already is. The first delinquency hurts the most. Later ones factor in lesser as your rating slowly turns into mud. Since the first one matters most, it's very important to never be late.
On the other hand, suppose a person has (or obtains) a good credit card record but their FICO score is still below 700. That person can raise their score 30 points (+ or – 15) by simply keeping a clean record for a year and paying a little over the minimum every month. Keeping everything else clean and charging small to medium priced purchases on the credit card every month and never being late can bring effortless rewards. Remember, your metrics aren't detailed enough to reflect how much you charge nor how much you pay over the minimum. They just show that you're consistent in not exceeding a healthy debt-load ratio (less than 50%) and that you consistently pay more than you're required to (it can be as little as a dollar).