Does Your Credit Score Change Daily?
Demystify credit scores. Understand how they fluctuate, what factors influence them, and how to effectively manage your credit.
A credit score is a numerical representation of an individual’s creditworthiness, often a three-digit number ranging from 300 to 850. Lenders use these scores to assess the potential risk when extending credit, such as for loans, mortgages, or credit cards. While a credit score reflects your financial behavior, it does not change on a daily basis. Instead, credit scores are dynamic and fluctuate as new information is reported and processed.
How Credit Scores Are Updated
Credit scores are calculated based on the information in your credit reports. Lenders and creditors regularly send updates on your account activity to the three major nationwide credit reporting agencies: Equifax, Experian, and TransUnion. This reporting occurs once a month, often coinciding with your billing cycle. Reporting schedules can vary.
When new information is received by these agencies, it is added to your credit reports. Credit scoring models, like FICO and VantageScore, then use this updated data to recalculate your credit score. Your score changes when new information is reported and processed by these models. While updates happen at least once a month, the exact timing depends on when your various lenders submit their data. If you have multiple accounts, new information might be added or changed throughout the month, leading to frequent score adjustments.
Actions That Influence Your Score
Numerous financial activities can influence your credit score, as they directly impact the data within your credit reports. Payment history accounts for approximately 35% to 40% of your FICO and VantageScore credit scores, respectively. Consistently making on-time payments demonstrates responsible credit management and can positively affect your score. Conversely, late payments, especially those 30 days or more past due, can harm your score and remain on your report for up to seven years, though their impact lessens over time.
Credit utilization, the amount of credit you are using compared to your total available credit, is another factor, making up about 30% of your FICO Score. Keeping your credit utilization ratio low, ideally below 30% of your available credit, suggests you are not over-reliant on borrowed funds. Those with the highest credit scores often maintain utilization ratios below 10%. The length of your credit history also plays a role, accounting for 15% of your FICO Score and 20% of your VantageScore. A longer history of responsible credit use, including the average age of your accounts, contributes positively to your score.
The types of credit accounts you manage, known as your credit mix, can influence your score by demonstrating your ability to handle various forms of credit, such as installment loans (e.g., mortgages, auto loans) and revolving credit (e.g., credit cards). While this factor is less significant than payment history or utilization, it contributes to a well-rounded credit profile. New credit inquiries, specifically hard inquiries initiated when you apply for new credit, can cause a temporary slight drop in your score. These inquiries remain on your report for up to two years and indicate that you are seeking additional credit, which lenders may view as an increased risk if too many occur in a short period.
Understanding Your Credit Reports and Scores
A credit report and a credit score are not the same. A credit report is a detailed compilation of your credit history, including active accounts, debt levels, and repayment history over the past seven to ten years. It lists specific information such as credit accounts, payment status, public records like bankruptcies, and inquiries into your credit. Your credit score is a numerical summary derived from the information within your credit report, designed to predict your credit risk.
Federal law, through the Fair and Accurate Credit Transactions Act (FACT Act), grants you the right to obtain a free copy of your credit report every 12 months from each of the three major credit bureaus. You can access these free reports by visiting AnnualCreditReport.com, which is the only official, federally authorized website for this purpose. While these reports do not include your credit score, many credit card companies, banks, and other services offer free access to your credit score.
You have multiple credit scores, as different scoring models (like FICO and VantageScore) exist and can produce varying results based on their unique calculation methods and data weighting. For instance, FICO requires six months of credit history for a score, while VantageScore can be calculated with as little as one month. Regularly reviewing your credit reports helps ensure accuracy and identify any potential errors or signs of identity theft, which could negatively impact your scores.