||Ask Dr. Don
Dear Dr. Don,
I have one late payment that caused my FICO score to drop. How long
after this late payment does it take for the FICO score to go back
Also, the score supposedly dropped because I had inquired
about refinancing with three different lenders. Why is that? It
seems I should be able to shop for the best deal. Is there any way
I can do this without dropping my score?
A credit score is issued by credit bureaus and is a consumer credit
rating generated by proprietary credit models. Equifax has its Beacon
score, Experian has its FICO score and TransUnion has its Emperica
score. The credit bureaus all use Fair, Isaac and Company to create
their credit-scoring models. All three models use information in
your credit report to determine your credit score. For convenience,
I'll refer to all the different credit scores as FICO scores.
Your credit score is dynamic and changes regularly
as the information in your credit report changes. Staying current
on your payments will improve your score over time.
Shopping lenders for a mortgage or auto loan won't
hurt your credit score as long as you limit that search to a few
According to the Fannie Mae's Credit Scoring Guide,
"The credit report data used to calculate credit scores does
not include auto or mortgage loan inquiries that occur in the 30-day
period prior to the score being calculated, and auto and mortgage
inquiries that occur in any 14-day period are always considered
FICO in its myfico.com site suggests clustering these
loan inquiries but doesn't provide the specifics listed by Fannie
If you string things along, it's not apparent that
you are comparison shopping, and the multiple credit applications
will hurt your credit score. A good way to minimize this risk is
rates first on Bankrate. When you're ready to refinance, you
can then shop the lenders within a short time and limit the impact
on your credit score.
Equifax and Experian have credit score simulators
that let you run "what if" scenarios that will show you
how changes in your credit history change your credit score. Myfico.com
has a good discussion of what
factors influence your credit score.
As for how long it will take for your credit score
to recover from a late payment, the more recent the late payment,
the greater negative impact on your credit score. The later the
payment the more you're penalized. You'll see a gradual improvement
in your FICO score as time passes, but you won't be able to tell
when the late payment no longer affects your FICO score.