Why Does My Credit Score Fluctuate?
Uncover the reasons behind your credit score's constant changes. Learn how various financial actions and data updates shape its movement.
A credit score is a numerical representation of an individual’s creditworthiness. Lenders use this number to assess risk, influencing decisions on loans, credit cards, and interest rates. While based on past financial behavior, a credit score is not static; it changes as new information is reported. These fluctuations reflect the dynamic nature of an individual’s financial activities.
Key Factors Influencing Credit Score Fluctuations
Payment history is the most significant factor influencing credit scores, typically accounting for 35% of a FICO Score and around 40% for VantageScore models. Consistently making payments on time demonstrates responsible financial behavior and can lead to score improvements. Conversely, a single payment reported 30 days or more past its due date can significantly lower a score. The negative impact increases if payments become 60 or 90 days late, making timely payments crucial.
Credit utilization, the amount of revolving credit in use compared to total available credit, is another highly influential factor, often making up 30% of a FICO Score and 20% for VantageScore. A lower utilization ratio signals to lenders that an individual is not overly reliant on borrowed funds. Experts advise keeping credit utilization below 30% to maintain a favorable score. High balances can cause temporary score drops when reported, while reducing balances can lead to rapid score increases.
The length of credit history is a factor, generally accounting for 15% of a FICO Score and 15-20% for VantageScore. This factor considers the age of the oldest account, the newest account, and the average age of all accounts. A longer history of responsibly managing credit accounts contributes positively to a score, providing a more extensive track record for lenders. Opening new accounts can temporarily decrease the average age of accounts, potentially causing a slight, short-term dip.
New credit applications result in a “hard inquiry” on a credit report, which can cause a small, temporary drop in a credit score. A single hard inquiry typically reduces a FICO Score by fewer than five points, and its impact usually fades within a year, though it remains on the report for two years. Multiple hard inquiries in a short period, especially for different types of credit, can signal higher risk and lead to a more noticeable score decrease. However, scoring models often account for “rate shopping” by treating multiple inquiries for the same loan type within a specific timeframe (typically 14 to 45 days) as a single inquiry.
The credit mix, referring to the blend of different types of credit accounts, contributes to a smaller portion of the score, typically about 10% for FICO. This includes revolving credit, like credit cards, and installment loans, such as mortgages or auto loans. Demonstrating the ability to manage various forms of credit responsibly can be seen favorably by lenders. However, opening new accounts solely to diversify credit mix is generally not recommended, as the potential benefit is often outweighed by new inquiries and reduced average account age.
The Role of Data Reporting and Updates
Credit scores are derived from information within an individual’s credit reports. These reports are compiled by the three major nationwide credit bureaus: Equifax, Experian, and TransUnion. Creditors, including banks and credit card companies, regularly transmit updates about account activity to these bureaus. The typical reporting cycle for most lenders is monthly, usually aligning with the billing cycle or statement date.
Credit scores are not updated instantaneously, but when new data is received and processed. For instance, a credit card balance might be reported on a specific day, and a payment made after that date would not be reflected until the next cycle. Because different creditors may report on varying days, information across credit reports can be staggered. This can lead to minor fluctuations as new data becomes available, meaning a score seen today might differ slightly from one seen a few days later. Errors on a credit report can also cause unexpected score fluctuations until corrected.
Understanding Different Credit Scores and Models
No single, universal credit score exists. Individuals typically have multiple scores, which can vary depending on the scoring model used, the credit bureau providing the data, and differences in data held by Equifax, Experian, and TransUnion. This variation can sometimes be perceived as a fluctuation, even when underlying credit behavior has not changed.
The two primary credit scoring models in the United States are FICO and VantageScore. These models utilize different algorithms and assign varying weights to the factors that comprise a credit score. For example, while both consider payment history and credit utilization as significant, their exact weighting may differ. FICO Scores are widely used by approximately 90% of top lenders.
Both FICO and VantageScore have multiple versions, such as FICO Score 8, FICO Score 9, and VantageScore 3.0 or 4.0. Lenders may also use industry-specific FICO Scores, tailored for particular types of credit products like auto loans or credit cards. These specialized scores fine-tune calculations based on risk behaviors relevant to that industry, often having a score range of 250-900, compared to the general 300-850 range. The score an individual sees depends on which version and model a lender or service is utilizing. Additionally, many free “educational” scores provided by credit card companies or financial apps may differ from the specific scores lenders use for approval decisions.