What are Credit Brackets?

This is an advanced topic, not one I see often discussed.

The FICO scoring system has multiple credit score brackets. Each bracket is scored on a “grading curve,” meaning all the credit profiles in that same bracket are scored against each other.

Think of it like classrooms. The first graders are scored together; the second graders are scored together, and so on. The student who earns an “A” in first grade would not earn an “A” in third grade for the same work. Third graders are scored more strictly than first graders.

If you have a judgment on your credit report, you are in a bracket with other people who also have judgments. If you have zero public records and zero late payments, you are scored against other people who also have zero public records and late payments. Thus, the people with perfect credit are scored against one another.

This explains why a person with perfect credit who gets one 30-day late payment on a credit card can lose 80 points off their score; whereas a person with multiple scattered late payments throughout the years might lose only 30 points with a new 30-day late payment. They are in different brackets for scoring.

“Why Did My Score Go Down When My Judgment Came Off?”

Let’s look at two scenarios:

#1 Person has multiple late payments and a judgment

#2 Person has zero late payments but one judgment

Scenario #1: If this person removes the judgment off their credit report, their score will improve — possibly significantly. This is as you would expect.

Scenario 2: If this person removes the only derogatory item on their report, the judgment, now they are no longer in the bracket with others having a judgment (and probably multiple other derogatory accounts). They get to “graduate” up to the bracket with people who have no bad credit. Now, in this “higher grade bracket,” their score could actually go down, because all the other people with pristine credit might have even better credit than this person for the following reasons:

They might have lower balance-to-limit ratios. (A major factor)
They might pay their balances in full each month rather than carry balances.
They might have a better mix of credit.

Don’t Despair!

If you are like scenario #2 and saw a drop in your score when your derogatory item was removed, don’t despair. Now by paying attention to the three bullet points above, you can raise your score even higher. But more importantly, it is also possible that your true mortgage score (as compared to the consumer scores you get from your credit card company, and the phony scores provided by those free score sites) may have gone up, not down. Don’t micro-manage your score while you are doing credit repair; that’s like jumping on the scale every hour while you’re on a weight loss program. You want to look at the big picture.