If you haven't checked your credit score in a while, odds are it's different today than it was the last time you looked. While you may think you know the basics of how your credit score report is influenced and affected, you may notice ups and down in your score with seemingly no explanation.
Let's look at some common reasons why your credit score may seem to be fluctuating so often.
What Factors Influence the Fluctuation of Your Credit Score?
The truth is, there could be hundreds of reasons why your credit score changes from one month to the next. Here are some of the more common reasons for a change in your score.
Factors That May Cause Your Score to Go Up
- Becoming current on any past due balances
- Lowering utilization ratio on revolving balances
- Making timely payments
- Reducing overall debt
- Maintaining a low credit card balance
- Maintaining a string of positive old debt
Factors That May Cause Your Score to Go Down
- Making late payments
- Maxing out your credit cards
- Having unpaid accounts sent to a collections agency
- Owning or applying for too many credit cards
- Keeping debt levels too high
- Filing for bankruptcy
Because the credit score calculation is so complex, it could be difficult to pinpoint the exact reason for your credit score to jump or drop, but these are some of the more common causes of a gain or loss in credit score points.
Different Credit Bureaus Will Give You Different Credit Scores
In the 1980s, the Fair Isaac Corporation (FICO) set up the first general purpose credit scoring system to help alleviate the inconsistencies that came about from having each individual lender free to perform their own credit calculations. Since then it's become known as the FICO score, which has been widely adopted by the largest credit reporting agencies in the country.
However, there are many different credit scores that are currently available to lenders, and they each have their own way of calculating these scores, as well as their own credit score range.
Here are the various models that use slightly different calculations to determine a credit score, and their associated score ranges:
- FICO Score: range - 300-850
- VantageScore 3.0: range - 300 - 850
- VantageScore scale (versions 1.0 and 2.0): range - 501 - 990
- PLUS Score: range - 330-830
- TransRisk Score: range - 100-900
- Equifax Credit Score: range - 280 - 850
If you happen to notice your score is different from one bureau to the next within the same day, it's because the formulas used to calculate them differ amongst the different bureaus. When comparing you credit score from one time frame to another, it's best to make sure the scores you are comparing are from the same agency.
However, it's important to note that different scoring models can even be used within the same credit bureau. Each bureau can use many different credit score models based on the requirements of various lenders. Each credit score model features a different formula that takes some of the over 200 different factors of your credit report into account.
Changes in the FICO Formula
Recently, the FICO score formula underwent some changes, which can affect a consumer's credit score. The new FICO score will eliminate collection agency accounts that have been paid off. Health care bills are the most common type of debt in collection, with about half of the negatives on consumers' credit reports coming from medical debt. With this elimination of paid-off collection agency accounts from credit score calculations, a number of consumers will find their credit scores rising.
Changes to the formula happen periodically in order for FICO to continually improve the formula to make it much more accurate at determining a consumer's credit risk. The same is true for other credit scoring formulas. The result is a number of versions of the FICO formula that may be used at any one time. When a new version comes out, such as was the case only a few weeks ago, it can result in a change to your credit score.
What is most important is that you actively monitor and manage your credit health by checking into your credit score every few weeks. By keeping track of your credit score over time, you'll have the most valuable information about how to adjust your credit habits to help build a healthy score.
One way to do this the easy and effective way is to use a tool like Mint's Credit Monitor. You'll be able to get your credit score for free - with no credit card - so you know where you stand in lenders' eyes. You'll gain access to an easy-to-understand summary of your credit history to help you understand how you can improve your score. Try it today for free by visiting Mint.com!
Lisa Simonelli Rennie is a freelance web content creator who enjoys writing on all sorts of topics, including personal finance, investing in stocks, mortgages, real estate investments, and anything else to do with the world of economics.