You pay the same bills, have the same number of loans and are continually responsible with your credit cards, yet your credit score changes from month to month. It can seem like a credit score fluctuates up or down like the seasons even if you seemingly haven’t done anything to influence it.
Sometimes your score does change based on factors outside of your control, but most times your behavior influences your score in ways that may not be obvious. Let’s take a look at the factors that influence your score and a few reasons as to why it might change even when you don’t think you’ve changed your behavior.
Why Did Your Score Change?
Your credit score is calculated based on your payment history, the amount of money you owe, the length of your credit history, the type of credit you have and new credit that has been added, so a change in your score means one of those has changed.
Your Credit Utilization Has Changed
Your credit utilization ratio is the amount you owe on your credit card relative to your credit limit. It influences your credit score, so a change in either of the two can cause your score to adjust.
Have you charged more on your credit card lately? If so, your credit utilization may have increased, which can negatively impact your score. Typically, having less than a 30% credit utilization (i.e. spending $300 or less if your credit limit is $1,000) can keep your credit in top shape.
Check to see if your credit card company has increased or decreased your total limit. Often credit card companies will tell you if you’re eligible for a change in credit limit, but they could alter it without you knowing. If your spending habits remained the same, an increase in your credit limit would decrease your credit utilization ratio, which can positively impact your score. A decrease in your credit limit would increase your utilization ratio; thus, your score could go down.
Something Was Recorded on Your Credit Report
Think back on your payment history – have you missed a credit card payment in the last few months? Were there any bills that you may have missed in previous months?
Missed payments are typically not reported to the credit bureaus until they’re at least 30 days late, so your score won’t be impacted until after that time. Your score will be hurt by a payment that’s more than 30 days late, but a delinquency, referring to a payment that is over 30 days late – 60, 90, or even 180 days – can devastate your score.
Derogatory marks such as tax liens, charge-offs, collections, foreclosures or bankruptcies have drastic impacts on your credit too, and it may take weeks or months for them to show up on your report. If you’ve experienced any of these, it may take time for your score to change.
Something Fell Off Your Credit Report
Thankfully, missed payments and derogatory marks won’t stay on your credit report forever. The greater the age of those marks on your credit score, the less impact they have, so you may see your score recover over time while your behavior is kept consistent.
Late payments over 30 days will remain on your credit report for seven years, while derogatory marks like bankruptcy can remain on your report for up to 10 years. Over time your score will recover, and once these marks fall off your credit report, you may see an instant boost in score.
There Has Been a Recent Inquiry on Your Report
If you’ve recently applied for a credit card or loan, the lender has probably pulled your credit report. This is considered a hard inquiry, occurring when a lender checks your credit to determine if they want to lend you money. These will temporarily lower your score.
An Account Has Closed
When you pay off a loan, your credit score could be negatively affected. This is because your credit history is shortened, and roughly 10% of your score is based on how old your accounts are. If you’ve paid off a loan in the past few months, you may just now be seeing your score go down.
Your score could be negatively impacted by a closed credit card, too. Not only is your credit history shortened, but your credit limit would also decrease and your credit utilization ratio would be impacted.
Often you’ll be the one authorizing a credit card to close, but card companies can close them without your knowledge. The Equal Credit Opportunity Act allows creditors to close a card due to inactivity, delinquency or default with no notice. If they close an account for any other reason, they only have to give you 30 days’ notice after closing the account, so you could have a closed credit card that you don’t know even know about.
Should You Worry About Changes in Your Credit Score?
Changes in your credit score are completely normal, so there’s no need to worry about small fluctuations! That being said, it’s good to check your credit report at least once a month so you can monitor these changes when they occur.
You may want to take note of large changes in your score as they could be an indication that something bigger is happening – for example, if you have unauthorized accounts opened in your name, or you’ve been a victim of identity theft.
The next time your credit score changes, think about the following questions:
- Have you spent more or less money this month compared to previous months? If so, your credit utilization ratio may have changed.
- Did you miss a payment in the past few months? If so, you could have a delinquent payment that’s hurting your score.
- Did a missed payment or derogatory mark from several years ago fall off your credit report? If so, your credit score may be going up.
- Have you applied for credit? An inquiry may have been placed on your report, which can negatively impact it.
- Have you recently paid off a loan or closed a credit card? If so, your credit history may have been impacted.
After looking closer, you may find something has changed that could influence your credit score that you weren’t initially aware of. The best way to monitor changes in your score is to check your credit report monthly, so you’re up to date on all the changes that impact your score. Sites like QLCredit allow you to check your credit score and report for free every two weeks!
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