7 Not-So-Obvious Reasons Why Your Credit Score May Change from Month to Month

If you’ve been following our blog, you’ll know how important it is for you to check your credit report at regular intervals to ensure that it contains no mistakes or errors. Pulling your score also allows you to keep tabs on your own creditworthiness and enables you to take timely steps towards maintaining or improving it. However, while evaluating your credit, you may find that the three-digit number that signifies your score varies or fluctuates over time – even when it is being generated by the same credit reporting agency. If that’s the case, there’s no reason to panic; this is something that’s quite common and may happen due to any of the following reasons.

Payment History

Payment history is the most important determinant of your creditworthiness; hence a change in this factor may cause a variation in your score as well. For example, any payment that you make on your credit card, instalment loan, car loan or mortgage could reduce the overall amount of debt that you owe, thereby causing an alteration in your credit score.

Debt-to-Credit Ratio

Also known as credit utilization, this signifies the amount of available credit that you are using. It can cause your credit score to fluctuate, especially if your credit card balances change from month to month. Most experts are of the opinion that credit utilization should be kept below 30% of the total available credit at all times.

Timing

Even if the information on your credit report remains the same, your score may fluctuate due to the passage of time. As the information on your report grows older, it has a lesser effect on your credit score. For example, negative information, such as late payments, can affect your file for a period of seven years only, while most bankruptcies fall off your credit report after ten years.

Age of Accounts

While calculating your score, FICO considers not only your oldest account, but also the average age of your accounts. Thus, if your accounts cross a threshold that FICO finds significant, you may find that your score has improved.

Changes in Scoring Formula

In order to indicate credit risk in a more accurate manner, FICO keeps on updating its formula at regular intervals, with the result that multiple versions of the formula may be in use at the same time. This is also the case when it comes to non-FICO formulas. Hence when a newer version of a formula is applied to the information in your credit file, your score may change.

Scorecard Hopping

FICO does not evaluate all consumers equally – instead, it uses scorecards to categorize and assess the creditworthiness of similarly situated consumers. For example, the formula has devised a scorecard for individuals who have a bankruptcy on their record. Now if the bankruptcy is removed from the consumer’s file, he may be moved on to a different scorecard, which in turn could cause a change in his score. An interesting point to note here is that moving to a better scorecard may actually lower the consumer’s score in the short term, as he is now compared to a more creditworthy group of consumers.

Other than the above, hard inquires and late payments may also cause a consumer’s score to change from month to month.

Variation between Credit Reporting Agencies (CRAs)

While your score may fluctuate when accessed from the same CRA, it can also vary if pulled from different agencies. Many creditors do not report their information to all of the three national bureaus. This means that your score could be based on a slightly different set of data, depending on which agency it is pulled from. Moreover, it is possible that all three agencies use different scoring models. Or perhaps your lender is using industry-weighted scores; this can also cause your score to vary from the ones that you have accessed on your own.

While it is natural for your credit score to vary both within and between CRAs, it is extremely important for you to you ensure that the changes are not due to inaccurate or outdated information in your credit report. For this, it is advisable that you check out AnnualCreditReport.com, where you can access your report from each of the three major credit bureaus for free once a year. Carefully go through your report and take steps to correct errors and mistakes, if any. Regular perusal of your report will also give you an idea as to how you can boost your score by altering your credit habits.

Alternatively, you could also hire a credit monitoring agency to achieve this objective. As your credit score improves, you’ll find that you’re eligible for better financing at superior rates. At Fund&Grow, we offer clients with good credit the opportunity to get as much as $50,000 - $250,000 of unsecured credit at 0% interest. For a flat fee, we not only walk you through the process, but also take care of most of the legwork ourselves. So if you need financing to achieve your business dreams, call us (800) 996-0270 right away!