If you’ve ever wondered how things like debt settlement and bankruptcy affect your credit score, look no further.
MSN Money’s Liz Pulliam Weston asked FICO how these and other negative finance moves actually affect your FICO score.
The results are surprising (at least to me). The FICO company (Fair Isaac) is not crazy about giving away too much of its secret formula that determines a person’s FICO score, so Ms. Weston had them respond to a hypothetical situation where two people were hit with the identical situations, but started with different scores. Here’s the result:
Credit score deductions
| Effect on a 680 score | Effect on a 780 score | |
| Maxed-out card | -10 to -30 | -25 to -45 |
| 30-day late payment | -60 to -80 | -90 to -110 |
| Debt Settlement | -45 to -65 | -105 to -125 |
| Foreclosure | -85 to -105 | -140 to -160 |
| Bankruptcy | -130 to -150 | -220 to -240 |
Source: FICO
As you can see, how much a given action affects your overall credit score depends in part on what your current score is. For example, a debt settlement or bankruptcy will hurt your score a lot more if you have a 780 than a 680 to start with. What’s not surprising is that the big events – bankruptcy, foreclosure and debt settlement – can all bring your score down in a big way, but the difference between scores is startling.
The higher your score, the more points you stand to lose from behavior that FICO deems as “bad”. This is one reason why a high credit score is hard to get and can be harder to keep. But that also means preferential treatment for higher scores is even more justified.
Another takeaway here is that when someone tells you that “debt settlement doesn’t hurt your credit score as much as you might think”, you may want to gauge that against your current credit score before accepting that as fact.
BONUS!
Since FICO doesn’t release their algorithm for determining your score, you may be wondering what your score is. Well, you can go to sites like MyFico and pay to find out, or you can head over to BankRate.com’s FICO estimation tool and get a general idea for free. 
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[...] upside: It would eliminate the debt obligation completely. The downside: It would cause some damage to her credit history and she may need to hire an attorney, depending on what assets she may [...]