Why Do Credit Scores Change?

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One may wonder why do credit scores change. Many individuals are unaware as to why his or her credit score may change. Many may assume, logically, that credit scores only fluctuate when a significant credit event takes place – you make (or miss) a payment, for example, or open a new line of credit. In fact, that’s not necessarily the case. Your credit score may be constantly in flux, especially if you’re the type of person with several lines of credit and an active financial life. In this article, we’ll cover the things that might change your credit score and the frequency with which your score may change (spoiler alert: it may be more frequent than you think).

Why do Credit Scores Change?

Have you ever wondered why credit score changes? It’s a common concern. If you think that your credit score will only change when you make a payment, or miss a payment, or open a new line of credit like a credit card, you may be unaware of changes that are occurring to your credit score at other times. The truth is that the credit reporting agencies – Experian, Equifax, and TransUnion are the main ones – update your score on a rolling basis, based on information they receive from creditors to which you owe money, or with which you have a line of credit open. For example, your credit card company may send information to the credit reporting agencies at any time, which may result in an adjustment to your score.

Many people may be unsure of why credit score changes. It is intuitive to assume that your credit score will only change after a major credit event, such as making a payment (or missing one) or opening a new line of credit. While these events do affect your credit score, they are far from the only factors that change it. Your credit score is changed by credit reporting agencies, including the three major agencies, Experian, Equifax and TransUnion. Of course, these agencies don’t automatically receive information about your financial activity. Before they can make changes to your credit score, they must receive information from the entities that have provided you credit in some form, which may include banks, car dealers, mortgage lenders, or others. These various entities send financial information – think of them as ‘credit updates’ – to the credit reporting agencies periodically, generally about once a month. In other words, if you notice changes in your score and are wondering why credit score changes, it may be a result of one of these ‘credit updates.’

What are Credit Scores Based On?

To understand more fully why credit score changes, it is useful to understand what your credit score is based on. To put it simply, your credit score is based on your ‘credit report,’ which is a compilation of all of the details regarding your credit history and current credit situation. When entities send the credit reporting agencies credit updates, those updates are featured on your credit report. Within your credit report, however, not all factors are equal. Your payment history – your record of making (or missing) payments – is the most important factor, making up about 35% of your overall credit score. Meanwhile, other factors are not nearly as significant. For example, the diversity of your credit sources represents only about 10% of your credit score. What does this mean? It means that when you’re wondering why credit score changes, the answer might depend on the amount of change you’re referring to. Big drops in credit score are unlikely to be the result of your types of credit and are much more likely to be the result of a negative note (or a ‘derogatory mark,’ as it’s known in financial lingo) in your payment history, such as a missed payment.

Other Credit Score Factors

However, smaller changes could occur at any time. These changes can only be the result of certain factors, though. Aside from the two factors mentioned above (payment history and diversity of credit), the amount you owe makes up about 30% of your credit score, the length of your credit history makes up about 15%, and new credit requests or openings represent about 10%. This last category is recorded via what are known as ‘hard inquiries’ about your credit score, meaning inquiries made by potential creditors, like banks or auto dealers. When one of these institutions requests your credit score prior to providing you with a line of credit, it’s a ‘hard inquiry,’ and impacts your credit score to the tune of about 10%. It is important to note, however, that ‘soft inquiries’ – inquiries you make, to keep track of your score for personal or record-keeping reasons – do not impact your score at all. Check your score whenever you want, and be sure to formulate a credit-building strategy to stay in good financial standing and enjoy all of the benefits that come with it.

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