Tracking your credit score is easier than ever. An increasing number of banks, including Wells Fargo, provide you with unlimited access to your credit score.
But being able to watch your score so closely over time means that you may notice something unsettling — bumps and dips in that all-important number. So what’s going on from month to month? Why is your credit score fluctuating? And, more importantly, should you be worried?
Here are some of the most likely reasons you’re seeing a score change:
You’re comparing different credit scores
You may think that you have just one credit score, but the reality is that you have a few. So, when tracking your score over time, be sure you’re comparing the same type of credit score.
First, look at the credit model. The two most popular ones you’ll find are FICO and VantageScore. Score models update periodically, resulting in new versions. Next, check the version of that model to ensure, for example, that you’re tracking FICO score 8 consistently and not looking at FICO score 9 by mistake.
Your payment history has changed
Hands down, the most significant influence on your credit score is paying your bills as scheduled. As a result, if you’ve been a good bill payer but suddenly have a late or missed payment, you’ll likely spot a noticeable dip in your score.
The amount of credit you’re using has changed
Your credit utilization ratio — the percent of available credit you’re actually using — has a major impact on your score. So, your score may drop if you put a big purchase on a credit card. And you may see a bump in your score when you pay down debt or spend less than usual.
Plus, timing matters in terms of when your score is calculated. Even if you cover your balances each month, your score can look lower if you check it before you actually pay the bill — when you’re using more credit.
You’ve recently closed a credit card
Remember: Your score depends largely on how much available credit you’re tapping into. Even if your spending habits don’t change, you reduce the amount of your credit limit by shutting down a card. Plus, losing an old card from your credit history can make you look less experienced with credit. And both of those factors can translate to a lower credit score.
You’ve applied for new credit
When you’re actively applying for credit cards, loans, or other forms of debt, a lender typically runs what’s called a hard inquiry on your credit report. Hard inquiries prompt a temporary dip in your score, and several of them can cause a noticeable drop.
Bad information has aged on your credit report
Late payments, debts in collections, loan defaults, and other black marks on your credit report certainly lead to decreased credit scores. The good news is as these issues fade into the past, they begin to have less of an impact. And, eventually, they’re no longer considered at all in calculating your score.
When should you worry about a dropping credit score?
Did your score shift unexpectedly? A few points’ difference from month to month is nothing to worry about. But major movement is worth investigating.
First, review any documentation that comes along with your credit score. Many reports offer a listing of negative factors dragging down your score. Have any of those factors changed since the last time you saw your score?
Second, look at your account activity on loans and lines of credit. Did you accidentally pay late or miss a payment entirely? Is your balance higher than usual? And are there any suspicious charges you don’t recognize on your cards?
Finally, order a free copy of your credit history report. Look for recently reported behavior that could explain the score change you’ve noticed. Be sure to contact the credit bureau issuing the report if you find incorrect information. Bad data may simply be an error or could indicate identity theft.
Many people worry when they see changes in their credit scores. And it’s true that big movement can point to a problem. But minor shifts are normal. Plus, knowing how your behavior impacts your score can make your score less mysterious while empowering you to build yourself a stellar credit history.