Will Congress Help Your Credit Score? - TheStreet

Will Congress Help Your Credit Score?

People with good scores who are at risk of missing payments could benefit most from the legislation.
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A bill that is moving through the hallways of Congress would not only prevent a new wave of foreclosures, but salvage the credit scores of hundreds of thousands of homeowners as well. Read on to find out whether it could help boost your score.

While many factors are considered, a foreclosure can leave a big black mark on a consumer's credit rating for up to seven years, according to Ethan Dornhelm, senior scientist of scoring solutions at

Fair Isaac


, the company that developed the FICO score.

Dornhelm says the FICO score will "certainly" take a foreclosure into account as long as it remains on a credit report. But, he adds, "if the consumer gets back on the horse shortly after the foreclosure ... as that foreclosure gets older and older, the impact will diminish."

The legislation would allow homeowners who are saddled with high-interest debt to refinance with safer, more affordable mortgages under a proposed $300 billion Federal Housing Administration program. Under current law, those consumers are too risky to qualify for government-backed loans.

Details are being ironed out House and Senate, but President Bush has promised a veto. The ultimate fate of the bill will have implications that could drastically alter a large swath of the country's finances.

Those with stellar credit scores who have not yet made a late payment stand to benefit most from the proposed bill.

"If you never missed a payment and have a sparkling credit history with a very high FICO score, you have a lot more to lose" if you experience a foreclosure, he says.

For instance, a consumer with a 700 score could lose hundreds of points from a foreclosure, depending on circumstances, while a consumer with a score of 500 would lose "considerably less."

Still, consumers shouldn't bet on a government bailout to keep their credit scores pristine. Dornhelm suggests developing a "battle plan" to tackle high-interest debts first and isolate the problem areas to gain control of the situation.

FICO scores range from 300 to 850, and take into consideration -- in order of importance -- payment history, amounts owed, the length of credit history, new credit and types of credit used. The scores factor into not just mortgage payments, but also credit-cards, auto loans, student loans and a slew of other types of debts and financial encounters.

Another important factor to consider is credit-card utilization. The higher the portion of credit limit an outstanding balance takes up, the worse it is for the score. Higher limits and lower balances are key to improving a FICO score from a credit-card standpoint, as well as paying bills on time.