Have you been wondering why your credit scores change over time? Click to learn more from Equifax about the different factors that can affect your credit scores. [Duration – 2:00].
If youre tracking your credit scores over time, you may notice the three-digit numbers may change, even if the most recent score is generated by the same consumer reporting agency as previous scores.
Having a good credit score is important for getting approved for loans and credit cards with favorable interest rates. However, many people notice their credit scores fluctuating even when they haven’t applied for new credit or missed any payments. If you’ve ever wondered “why does my credit score go up and down for no reason?”, this article will explain some of the common causes.
How Credit Scores Are Calculated
To understand why credit scores change, it helps to first understand what goes into calculating them. The most commonly used credit scoring model is the FICO score which ranges from 300 to 850. Here are the main factors that make up your FICO score and their relative weight
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Payment history (35%) Whether you make payments on time, have any late payments, collection accounts, bankruptcies, etc This is the most important factor
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Credit utilization (30%): This is the amount of credit you’re using compared to the total amount of credit you have available. It’s better to keep this number low.
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Length of credit history (15%): How long you’ve had credit accounts opened. Older accounts help your score.
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New credit (10%): How many new accounts you’ve opened recently and how many credit inquiries you have. Too many new accounts or inquiries can lower your score temporarily.
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Credit mix (10%): Having different types of credit like credit cards, auto loans, mortgages, etc. A mix helps your score.
Your credit score is recalculated every time it’s requested based on the most up-to-date information in your credit reports from the three major credit bureaus (Experian, Equifax, and TransUnion). Even small changes in your credit data can cause your score to shift up or down a few points.
Why Your Credit Score Fluctuates
There are a number of reasons why your credit score may change even if you haven’t applied for new credit or missed any payments. Here are some of the most common causes of credit score fluctuations:
Your Credit Utilization Changed
Your credit utilization ratio, or how much of your available credit you’re using, is the second most important part of your credit score, as we already said. Experts recommend keeping this below 30%.
If your utilization rate goes up because you charged more on your credit cards one month, your score could temporarily decrease. On the flip side, if you pay down balances and lower your utilization, your score will likely increase.
Small changes in how much you owe relative to your limits can impact your score, even if you pay your bills on time. The good news is you can improve your ratio quickly just by paying down card balances.
Your Credit Report Was Updated
Your credit reports are not static; lenders and creditors are always adding new information to them. It’s possible for each credit bureau to get new information at different times.
When new information comes in about your account history and balances, it can change your credit data and lead to score fluctuations. Even minor changes like a lower credit limit or new account being reported can alter your scores.
The Scoring Models Were Updated
Credit score companies, like FICO, update their scoring models on a regular basis to reflect changes in how people use credit. If the algorithms change, your score might be calculated differently, even if your credit report stays the same.
For example, in 2014 FICO updated their model in part to minimize the impact of unpaid medical debt. As a result, many people saw their scores increase even though they didn’t do anything different credit-wise.
Time Passed
The passage of time itself can actually cause your credit score to change. Here are some ways that happens:
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As the length of your credit history increases, it helps your credit score slowly improve.
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Negative marks like late payments and collections stay on your report for up to 7 years. As they age, they hurt your score less until they fall off.
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Closed accounts in good standing also fall off your reports after 10 years. This can change your credit mix and history factors.
In essence, just staying on top of your credit over time allows your score to gradually increase as long as you keep practicing good habits.
Other Possible Reasons for Credit Score Fluctuations
Here are some other potential explanations for changes in your credit score:
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You opened a new credit account – New accounts lower your score briefly until they age.
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One of your accounts closed – This alters your credit history length and mix.
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You have a new credit inquiry – Applying for credit triggers hard inquiries that can lower your score a few points.
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Your overall debt decreased – Paying down loans and credit cards helps your credit utilization.
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An old negative mark fell off your report – Collection accounts, bankruptcies, and other negatives fall off after 7 years.
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You’re an authorized user on someone else’s credit account – The primary user’s history impacts your score too.
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You received a credit limit increase on a card – This lowers your utilization by increasing your total limits.
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Interest rates changed on your credit accounts – Higher rates increase balances and utilization.
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Your credit history has gaps – Lack of recent activity can exclude old accounts from scoring.
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You moved addresses – This could impact which credit bureaus have your updated information.
Tips to Minimize Credit Score Fluctuations
While some amount of minor credit score fluctuation is normal, there are things you can do to help keep your scores more stable:
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Maintain low credit utilization by paying balances in full each month and spreading charges between multiple cards.
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Be prudent about applying for new credit – space out applications and only open accounts you need.
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Check your credit reports frequently to ensure all information is accurate and up-to-date.
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Have a long credit history by keeping old accounts open and active when there are no annual fees.
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Sign up for credit monitoring to track your scores and get alerts for big changes.
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Contact creditors to correct any reporting errors that are artificially lowering your scores.
The Bottom Line
The passage of time affects your credit scores.
Even if there are no changes to your credit reports, the passage of time could cause fluctuations in your credit scores. For example, if you pay your credit card bill late, it may not hurt your credit score as much over time. That doesnt mean that its okay to make a late payment. One of the best habits you can get into is paying your bills on time every time.
Credit scores may vary across the CRAs.
While a credit score from one CRA may rise and fall, you may also see differences in credit scores furnished by the other two agencies.
Some lenders and creditors report to all three of the nationwide CRAs, but others may report to only two — or none at all. That means the information that each agency uses to calculate your credit score may differ. Also, credit scores are calculated differently by the three nationwide credit bureaus and other credit reporting agencies. This means that even if all of your information is the same, your credit scores may be different.
OMG!! Why Would My Credit Score Drop 100 Points
FAQ
Why does my credit score go down?
This will often trigger a drop in your credit score until you can pay down your credit card debt again. When new negative details, like late payments or collection accounts, show up on your credit report, it’s common for your credit score to decline. Payment history makes up 35% of your FICO® score.
Why does my credit score go down if I pay my bills?
There are multiple reasons your credit score could go down even if you’ve paid your bills on time. For instance, has your credit utilization ratio gone up? If you recently made some big purchases with credit cards and racked up more debt, that could be why your score dropped.
Why do credit scores fall?
Here are some of the most common reasons why credit scores fall. If you’ve been using your credit cards a lot lately to buy things, you may have raised your credit utilization ratio, which shows how much of your available credit you’re actually using. Fortunately, there are a few ways to lower your credit utilization, such as paying down your debts.
What causes a sudden drop in your credit score?
A sudden drop in your credit score could be due to an error in your credit report. For instance, a creditor might have mistakenly reported an on-time payment as late, or fraudulent activity could result in inaccurate information on your credit report.
Why does my FICO score drop?
Any change to the factors that go into your FICO score could prompt a drop. That said, one common reason is a change in your credit utilization ratio. Even if you pay your bills on time, a rise in debt could cause your score to fall. Photo credit: iStock/MStudioImages.
Why did my credit score drop if I paid off a debt?
Lower credit scores can also be caused by closed accounts and lower credit limits, even if you haven’t changed how you pay your bills. However, if you are certain it is for no reason, check to be sure there is not a mistake in your credit reports or that you’re not a victim of identity theft. Why did my credit score drop when I paid off a debt?.
Why does credit score randomly go up and down?
Small changes in your score—up or down—are normal. That’s because the information in your credit report is updated regularly. And these updates can impact your score. There are many factors that can cause a change in your score.
Is it normal for your credit score to fluctuate?
Yes, credit scores going up and down is normal. Stop micromanaging your scores, especially when you’re still far above the 720-740 range in order to get the best rates on any loans.
Why did credit score go down when nothing changed?
Reasons why your credit score could have dropped include a missing or late payment, a recent application for new credit, running up a large credit card balance or closing a credit card.
Why is my credit score low when I owe nothing?
If you have no record of handling credit previously, lenders have no evidence that you can borrow responsibly. This is referred to as having “thin credit” and can give you a lower score than you’d like. Thin credit can mean you have a low credit score, despite having no debt.