The Buckets of Credit
“WHAT! How Is That Possible?”
“My husband has 3 new collections and a new 30 day late showing up on his credit and I was only late once.”
That is the way a conversation started with a couple of clients, husband and wife, as we started to asses their credit situation and develop a plan. She was not happy with what she was seeing.
Part of our plan includes education. This was one of those challenging educational moments. You see, she saw over a 100 point drop in her mid score from a single 30 day late hitting her credit report, and her husband only saw a 37 point drop in his mid score.
If that seems crazy to you, I understand.
I think that there is something important to mention as well. Her score is still almost 700, and his is 501.
To some of you, it all makes sense now. And to others, you are even more confused, or maybe don’t see what that has to do with anything.
I have always said credit is very simple, but rarely is it easy. This is an example of why it does not seem easy, at least from an understanding stand point.
Fear not though. I will make it a lot easier for you.
Our credit scores are not a continuous line from 300-850, with all of us just falling on the line somewhere. It is a bit more detailed than that.
Our credit is more like a line with buckets tied to it. Each bucket contains consumers like you and me. Each bucket will contain people that are in similar situations, from a credit perspective.
For example, at a top bucket we might have borrowers with scores up around the 800 range. These borrowers have nothing potentially negative on their credit reports for the last seven years. Then we might have another bucket with people with scores under 400. They likely have a ton of potentially negative items on their credit.
There are may buckets, how many I don’t know, but that is not important. The key is that we are compared other consumers in our bucket, and the changes we see in our score, due to reported negatives, are considered in comparison to what is common to that bucket.
A great analogy is looking at baseball. You can be a great player in high school, when you are compared to other high school players, but when you get to college you are compared to players at the college level. Then you can move up to the minor leagues and then up to the majors. At each level you are compared to those in your league or bucket. If you don’t perform well at the higher level you drop back down to a lower bucket.
Your comparative performance is what matters.
So, back to the couple I was making a plan with. Remember how the wife observed that she only had one new 30 day late and her husband had a new 30 day late and 3 new collections?
The wife had a stellar record and until recently did not have a single negative anywhere on her report in the last seven years, as is typical of all those her bucket. She had a negative show up and it dropped her out of the buckets with no negatives. She went from a 801 mid score to a 695.
Her husband, (they have only been married a few months), had a lot of potentially negative issues on his credit, twenty in fact. His four new negatives had a small impact. What is a few more compared to twenty?
I hope this makes credit a little easier for you. There is a great deal more that goes into credit scores than meets the eye.
If you or anyone you know is facing credit challenges and wold like so help, Heartland Credit Restoration is a great place to start. Call or email me for a free consultation. The same goes for those of you who have clients with credit challenges. Forward their contact info to me and I will be happy to give them a free consultation and see what we can do to get them back to you with loan ready credit.
Please share this info on your social networks. Also, feel free to let me know if you have questions or comments and I hope you have a wonderfully blessed day!