Why Does Your Credit Score Go Up and Down?

Ever notice how your credit score goes up or down a few points every month?  Even worse, have you ever had your score just drop like a rock and you have absolutely no idea why?  Maybe you’ve been one of the lucky ones and seen a boost?   If you’re one of those people who gets their credit score emailed to them weekly or whenever there is a change, there’s no doubt that you wonder why it changed 2 points last week, or why it went up a point this week.  Every little score change makes you wonder… why doesn’t it just STAY THE SAME?

Actually, there are a lot of reasons why your credit score changes:

Your Balance Changes:  If you make a large payment (for example, with your tax refund), you might see your score suddenly shoot up like a little rocket (the larger the payment, the bigger the spike in your score).  Or, let’s say you make a large, new purchase, maxing out a credit card… you might actually see your score take a big nosedive.  That’s because your credit utilization goes up, leaving you less available credit.  This makes up about a third of your credit score, so keep your balances as low as possible.

You Apply for a New Credit Card:   Applying for a new credit card usually causes a hard inquiry on your credit file and this typically drops your score a few points for a short period of time.  This doesn’t make up a lot of your credit score, but if every point counts, don’t apply for new credit cards unless you really need them.

You Close a Credit Card Account:  Anytime that you close an old account, you shorten your credit history, which can negatively influence your credit score.  As tempting as it is, many experts now advise you not to close a credit card account unless you absolutely have to.

You Miss a Payment:  Missing a payment goes directly into your credit file and then stays there for seven years.  Since your payment history amounts to about a third of your score, missing just one payment can really drop your score and keep it down for a long time.

You File Bankruptcy:  Even though it’s usually a last resort, bankruptcy will have a very detrimental impact to your credit file. Therefore, it’s always wise to seek an experienced attorney to help you to make an informed decision before filing for a Chapter 7 or Chapter 13 bankruptcy. The statute of limitations for a bankruptcy can range from 7-10 years.

Your Identity is Stolen:  Unfortunately, by the time your credit score is affected by identity theft, it’s usually too late.  That’s why you need to regularly review your credit report and score.  You might even want to consider a paid subscription for identity theft protection.

Your Credit History is Short:  15% of your credit score is based on the length of your credit history, so if you’re just starting out, know that it’s going to take time to build up a strong credit history (and likewise, a strong credit score).

Believe it or not, over half of the population today cannot tell you if there has been a recent change in their credit score.  Don’t be one of those people – pay attention to your score, review it regularly, and investigate anything that you’re not sure about.