A credit score is a snapshot of your credit accounts, balances and payment history at a specific moment in time.
When a creditor requests your credit report and an accompanying score, the credit bureau sends a copy of your report, and a score is generated based on that report. Any change in the underlying report, or even the passage of time, can lead to a change in your credit score.
As a result, you can expect your credit scores to fluctuate depending on when data is reported to the credit bureaus, but as long as you remain current on your payments and don’t do anything drastic, such as file for bankruptcy or close accounts, the variations should be minimal.
When does your credit score change?
In a sense, your credit score is always in flux because the factors that influence a score can change at any moment. For example, if you make a big purchase and put it on your credit card, your credit utilization ratio will rise, which may cause a drop in your credit score until you pay down that balance.
If you’ve been monitoring your credit and see the score frequently change, you may be wondering what’s happening. Or perhaps you get different scores when you use different apps to check your credit. You may even check your score before applying for a loan and find that the loan officer gets a different score when they pull your credit.
Here’s a little insight into what’s going on.
Generic consumer credit scores from FICO and VantageScore, the two primary consumer credit-scoring companies, rely entirely on the information in one of your credit reports from Equifax, Experian or TransUnion. Because the information in your credit reports may not be identical as some lenders may not report account information to all three bureaus, what you see as a change in your score may be due to credit scores being generated based on different data.
FICO and VantageScore also have several versions of their credit-scoring models. FICO creates models for different types of creditors (such as a credit score for auto lenders) and has different versions of its scoring models that work with reports from the three bureaus. VantageScore has one scoring model, and it can work with a report from any of the three bureaus. But both VantageScore and FICO periodically update their base-scoring models.
In summary, your credit score can change or vary depending on:
- Which credit report the score is based on
- Which credit-scoring model is being used
- When the credit report and score were generated
What can cause your credit score to change?
Assuming you’re checking your score based on the same scoring model and credit report, a change in your score is likely due to information being added to or removed from your credit report.
Many factors can impact credit scores, and the factors in your reports can change throughout the month as the bureaus receive and update their records. In general, the following could lead to a rise in a credit score:
- Paying down loans
- Lowering revolving accounts’ balances
- Making on-time payments
- Derogatory (negative) marks falling off your credit reports
- Opening a new type of credit account
- A longer average age of accounts
- More time passing since a derogatory event
There are also some events that could lead to a drop in a credit score:
- Letting a bill go unpaid for 30 days past the due date
- More delinquent late payments (i.e., a 30-day late payment becoming a 60-day late payment)
- Defaulting (nonpayment) on an account
- Having an account sent to collections
- Declaring bankruptcy
- Applying for or opening new credit accounts
Because the age of your accounts and the time since a derogatory mark was added to your report can also impact a credit score, your score could also change simply due to the passage of time.
Small ups and downs in your score are normal
Now that you have a sense of why your credit scores may rise or fall, know that small fluctuations aren’t necessarily a sign that something is wrong.
But if you see a large unexpected drop in one or more of your scores, you may want to review your credit reports for any unfamiliar accounts or activity. An unexpected new account, inquiry, late payment or collection could be an indication of identity theft and fraud.
If you find something, you can contact the creditor to limit the potential damage, take steps to secure your other accounts (such as changing passwords or instituting a credit freeze), add a fraud alert to your credit files and dispute the account or information with the credit bureau or creditor.
You may also want to review your credit reports if you notice a large difference between scores based on different credit reports (assuming both scores are created using the same scoring model). Differences between your reports may not be a reason for concern on its own, as creditors may only report account activity to one or two bureaus. But it may still be worth checking to make sure there isn’t any fraudulent activity.
How to increase your credit score: Focus on the fundamentals
Although the world of credit scoring can seem intimidating, most of the credit-scoring models use similar criteria to score consumers.
So if you’re trying to improve your credit, it’s best to ignore the slight ups and downs and focus on the actions that can increase your credit scores, including:
Pay down revolving debt
Reducing the amount of debt you’re carrying is one of the fastest ways to boost your credit score as credit utilization is one of the most important credit-scoring factors.
Your credit utilization rate is the percentage of your combined available credit on revolving accounts (e.g., credit cards and line of credit) that you’re currently using. A low credit utilization rate of less than 30% is what many financial experts recommend.
Know that credit utilization is also measured on individual credit accounts as well. So, if you are carrying a $500 balance on a credit card with a $1,000 credit limit, your credit utilization ratio on that one card is 50%.
Another tactic to decrease your credit utilization is to contact your creditors and ask for a credit line increase, which could have a similar result. Although, paying down debt could have an additional benefit of saving you money on interest.
Don’t miss a bill payment
Your payment history is the most important credit-scoring factor and paying late can tank your credit scores quickly.
You may have up to 30 days beyond your due date before a creditor reports a late payment to credit bureaus. But creditors could charge you late payment fees before this point. If you happen to miss a payment, contact your creditor right away to rectify the matter. Late payments can stay on your credit reports for up to seven years, although as time passes and more positive payment history is added to your credit reports, the damage will fade over time.
Signing up for automatic payments for at least the minimum amount due could help you avoid accidentally missing a payment and getting charged a fee or having a late payment reported to the credit bureaus.
Be strategic when you apply for credit
Lenders check your credit when you apply for a new loan or line of credit. A record of this check, known as a hard pull or hard inquiry, can remain on your credit reports for up to two years and affect scores for 12 months. Hard inquiries can knock your credit scores down around five points with each inquiry, although the impact will fall off after a year.
However, when shopping for loans, those inquiries are often lumped together as one hard inquiry. FICO’s credit scores treat multiple mortgage, auto and student loan inquiries as a single inquiry if they occur within a 14- to 45-day window (the length depends on the scoring model). VantageScore “de-duplicates” all hard inquiries across account types if they occur in a 14-day period.
You also never need to worry about checking your own credit reports or scores. When you check your file, that’s recorded as a “soft inquiry.” Soft inquiries never impact credit scores.
Keep credit card accounts open and active
If you have a credit card that you rarely use and it doesn’t charge an annual fee, keeping the account active so that the issuer doesn’t close it for inactivity can help your credit scores. Age of credit accounts is another credit-scoring factor, and the longer you’ve responsibly using credit, the better.
While closed accounts stay on your credit reports for up to 10 years, when the account does drop off, it could decrease your length of credit history and your average age of accounts, which could hurt your scores.
But if you have to pay an annual fee for your card and don’t benefit from the card’s rewards or perks, keeping the account just for credit-scoring reasons likely doesn’t make financial sense.
Stay the course
A positive history of on-time payments, low debt levels on revolving credit accounts and experience using different types of accounts can help you build an excellent credit score. And if you do have negative marks on your credit reports, their impact can decrease as time passes as long as you continue to add positive information to your credit reports.