Why does my credit score fluctuate? A drop in your credit score can be a significant cause of concern, and you may not always understand why this is happening. Stay calm; this is a fairly common occurrence and does not mean you did anything wrong. Fluctuating credit scores can be attributed to several factors, and any one of them or a combination may be the culprit.
Key Takeaways
- Making payments to your credit cards and loans is the most significant cause of changes in your credit score.
- Maintaining a lower credit utilization rate by balancing your spending relative to your credit limit will prevent a reduction in credit scores.
- Always review and dispute inaccuracies on your credit report, as they may be causing adverse changes to your credit score.
- Different lenders may use industry-based scoring models that vary from the nationwide consumer reporting agencies (CRAs) scores.
Your credit score may fluctuate because you missed a payment, reduced credit utilization, or changes in your credit mix. Credit reports can suffer from inaccuracies that result in identity fraud and false documents. The most important thing is to understand the factors causing your score fluctuation so that you can take the necessary actions.
In this article, we will examine the reasons your credit scores may keep changing. Read on and take notes.
Why Does My Credit Score Fluctuate?
Your scores are snapshots of your credit history and will vary according to your credit habits and the data on your credit report. As new information is released to lenders and other sources, your credit report is updated. However, you should note that information on various credit reports may differ depending on what was reported to the different credit reporting agencies.
Reasons Your Credit Scores May Have Changed
There are numerous reasons behind credit score fluctuations, many of which happen without your involvement or intervention. Here are some of the significant reasons.
Your Credit Utilization Ratio Increased
The credit utilization rate measures how much of your available credit you use. Higher spending than usual will increase your rate and reduce your credit card balances. The Consumer Financial Protection Bureau recommends maintaining a rate of under thirty percent to keep your scores steady.
You Have Late or Missing Payments
Payment history is an essential part of calculating your credit score. Only credit card payments for a few days may appear on your credit reports. Your Credit card company will report your card as delinquent if your payments are more than 30 days late to credit bureaus. Should this happen to you, your scores will dive.
The best remedy to prevent credit score drop from missed payments is to enroll in automatic payment deductions from your bank accounts.
Some Lenders Use Industry-Specific Credit Scoring Models
Different lenders use different scoring models that may be specific to certain industries. For example, if you are purchasing a motor vehicle and need an auto loan, your lender may look more closely at your previous car loan repayments. The industry-specific scoring model will vary from the scores you receive from any of the three nationwide CRAs.
You Have Recently Opened or Applied for Multiple Lines of Credit
Lenders consider opening several credit accounts in a short amount of time highly suspicious and risky. Your fico scores will drop if you recently had several hard credit inquiries on your credit reports. An application for a new credit card will always attract a hard inquiry. Since your credit score fluctuates with every credit inquiry, you should limit the applications to only when you truly need the card.
Reduced Credit Limit
A reduced credit limit means your credit utilization rate will go up even if your spending remains the same. High rates will lead to your fico score fluctuating. You will therefore need to reduce your spending once your credit limit takes a hit. Alternatively, you could open a balance transfer credit card to increase your credit limit and lower your credit utilization rate.
You Closed a Credit Card
Closing your credit card has a direct effect on changing your credit score. Firstly, closing a credit card reduces your available credit, increasing your credit utilization rate if you don't cut back on your spending. Secondly, a longer credit length boosts your scores; therefore, closing out an older card hurts your credit history. It is important to only close older credit cards when necessary.
The Passage of Time Affects Your Credit Scores
Late payments affect your credit report and often reduce over time. You may notice a change in your scores even when there are no changes to your credit reports.
Derogatory Mark on Your Credit Reports
A derogatory mark indicates that you failed to pay a loan as per the agreement with your lender. Some of the reasons why you may have a derogatory item on your report include the following;
- late or missed payments
- Bankruptcy
- lawsuit
- foreclosure
- Tax lien
The derogatory marks will typically remain on your report for seven to ten years. However, the effect of the negative credit marks goes down over time, causing fluctuation. You can also have the marks removed after disputing them if they are made in error, which will boost your scores.
Your Recent Payment History May Affect Your Credit Scores
Your payment history is often considered the most significant contributor to your overall score. Payments on your credit cards and mortgage or auto loan are reported to one of the three nationwide CRAs, which will ultimately cause fluctuations in your credit scores.
You’ve Filed for Bankruptcy
Bankruptcy will appear on your credit report for six years or until you are discharged and significantly impact your credit scores. Your credit score typically drops 100 to 200 points in bankruptcy. Borrowers with 620 credit scores before bankruptcy could lose as much as 300 points. If you have lower credit scores, you will probably lose 100 credit points or more in the long term.
Your Report Needs to Have More Accurate Information
Major credit bureaus provide reports containing your free credit score when you request. You should review the report carefully every time to check for inaccuracies. The inaccurate information on the report may be causing fluctuation in your score. In case of an error on your report, you have a right to dispute it with your credit bureau, as this may help prevent identity theft.
Seeing fluctuation on your credit report may cause anxiety. However, a basic understanding of what is causing the changes is the first step to taking control of the scores and maintaining a reasonably constant figure over time. Reviewing the reasons listed above is the first step to the journey of having a stable credit score.
FAQs
Why Did My Credit Score Go Down When Nothing Changed?
Your credit score may go down when nothing changes because your credit card companies may have altered your credit limits. A decrease in credit limit increases the credit utilization rate, which changes your scores.
Why Does My Credit Score Go Up and Down for No Reason?
Your credit score going up and down for no reason is normal and to be expected. The most common cause is that payments to credit companies and lenders are reported to the three nationwide consumer reporting agencies (CRAs). Bankruptcy, identity theft, and closing down credit lines, among other factors, may also contribute to changes in your credit score.
Why Is My Credit Score Going Down if I Pay For Everything on Time?
Your credit score going down even when you pay for everything on time most often means that you have a high credit utilization rate. Your spending is relatively high and close to your credit limit, which harms your credit score. The remedy here would be to limit spending on your credit cards to reduce your rate.
What are Normal Credit Score Fluctuations?
Normal credit score fluctuation generally ranges from 20 to 25 points each month. It would help if you strived to maintain that range, as this is a healthy and average change in credit scores.
