How Often Can It Change?
Did you know that your credit score, on average, changes every month? Some people believe that a credit score is given once and never changes. Others think that because you are told to check it once a year, it must only change once a year.
But in reality, credit agencies most often report your activity once a month. So as you take actions that will affect your credit – like taking out a loan, paying off a credit card, or buying a house – you could potentially see the results of that action within a month or two!
Generally, lenders send a report to the credit bureaus they work with once per month with your account information. There are three major credit bureaus in the United States: Experian, Equifax and TransUnion. Your lenders may report to all three, two out of three, just one or none at all. In most cases, big banks report to all three.
So what kind of information are lenders sending to the credit bureaus each month? This varies from bank to bank, but the data they’re reporting about you or your account may include:
- The timeliness of your last payment (that is, whether your payment was on time or late).
- Account status (good standing, closed, delinquent, defaulted, in collections, etc.).
- Account balance.
- Authorized-user activity.
- Recent credit inquiries.
In the United States, lenders report both positive and negative credit information on roughly a monthly basis. This means that your credit score could change a bit each month, depending on the information that’s landing on your credit reports.
– via NerdWallet
What Makes The Biggest Difference?
So your credit report can be updated by the month, but what specific actions on your part will make a difference? These are a few of the top things that affect your credit score and credit report, in either direction.
Aging of Negative Items in Your Credit Report
Events such as bankruptcy, foreclosure, or late payments are examples of negative items that affect your credit score. These events remain on a credit file for a number of years. A late payment, for example, remains on a credit file for about seven years. As these events age and move into the distant past, hwoever, the affect they have on your credit score diminishes. As a result, as these items age, all other things being equal, your score can go up.
Changes in Revolving Credit Balances
Changes in revolving credit balances can cause credit scores to fluctuate. Credit card balances, for example, can change from month-to-month as you use your card, whether you’re paying off your balances in full or not. As your balances go up, your credit utilization goes up.
Credit utilization is calculated by dividing the amount of your debt on a credit card by your credit limit. For example, let’s assume you have one credit card with a $5,000 balance and a $10,000 credit limit. So $5,000 divided by $10,000 is 0.5, meaning you would have a credit utilization of 50%.
FICO looks at credit utilization both on an account-by-account basis and on an overall basis. The lower the utilization, the better. According to Tom Quinn of FICO, it’s best to aim for a credit utilization of no more than 20 to 30%.
One thing to keep in mind is that these revolving balances can change from month-to-month. Hence, your credit utilization also changes. If it goes up over a threshold that FICO finds significant, your score could drop. If it goes down and crosses a threshold that FICO finds important, your score could increase.
Age of Accounts in Your Credit History
As your credit file and accounts age, your score can improve. FICO looks not only at your oldest account, but also at the average age of your accounts. While this factor may not have a significant affect in any given month, it can cause scores to increase when accounts cross an age threshold that FICO finds significant.
Changes in the FICO Formula
FICO changes its formula periodically. FICO is continually trying to improve its formula to make it a more accurate indicator of credit risk. The same is true for non-FICO credit scoring formulas. The result is the multiple versions of the FICO formula are in use at any one time. When a new version is applied to your credit file, it can result in changes to your score.
– via The Dough Roller
How often do you check your credit score? What changes have you noticed recently?