Letters to the Editor

Although not as unique as fingerprints or snowflakes, credit scores are highly individualized — and often mysterious. Many factors determine your score, which can change overnight depending on everything from last month's credit card balances, to opening a new account, to applying for a car loan.

To help demystify — and quantify — how credit scores are determined, FICO recently shared information on the impact certain negative actions can have. For those not as obsessive about credit scores as I am, FICO is the company whose proprietary software is used by major credit bureaus to calculate the credit scores they sell to potential lenders as a tool for determining your creditworthiness.

But as FICO's Public Relations Director Craig Watts noted, the very uniqueness of each person's individual situation makes it difficult to generalize. "Take two people with excellent FICO scores of 780," he explained. "One might have a mortgage, several low-balance credit cards and a 20-year credit history; the other has a dozen open accounts, hefty student loan balances and a car loan, but no mortgage. Same score, very different circumstances."

What they probably have in common, said Watts, are a history of on-time payments, a low ratio of outstanding debt to available credit, and a cautious attitude toward taking on more debt — that, and no major negative credit activity: "If you have late payments over 30 days, receive a tax lien, or file for bankruptcy, the toll on your credit score can be significant and long-lasting."

With the caveat that actual point losses can vary widely depending on your individual situation, FICO did share broad ranges for two hypothetical scenarios: One person has a 680 score and the other 780, and each has a mortgage, car and student loans and several credit cards. They differ over factors such as amount of credit limit used, late payment record and length of credit history. Overall:

Exceeding a credit card limit might lower scores by 10 to 45 points.

A single late payment exceeding 30 days — 60 to 110 points

Entering a debt settlement agreement with a creditor — 45 to 105 points

Losing property to foreclosure — 85 to 160 points

Filing for bankruptcy has the most devastating impact — anywhere from 130 to 240 points in the scenarios given.

Surprisingly, people with good-to-excellent credit scores often lose more points for negative incidents than do those with lower initial scores. Watts explains that's because lower initial scores already reflect riskier behavior; not so for high-scoring people, so the appearance of negative credit activity on their otherwise spotless credit records may drop their credit scores farther.

The main reason to be concerned about significant point drops is that falling into a lower credit category could hamper your ability to qualify for a loan or credit card or receive lower credit limits, as well as greatly increase interest rates you're charged.

To learn more about what you can do to protect — or repair — your credit scores, visit What's My Score, a financial literacy program run by Visa (www.whatsmyscore.org.) The site also features a free FICO Score Estimator that can help you approximate your score.

—Jason Alderman,

director of Visa's financial education programs