Home > 2014 > Credit Score

Why Does My Credit Score Change So Often?

Advertiser Disclosure Comments 1 Comment

If you monitor your credit score, you may be like this reader — scratching your head wondering why it changes so often.

Here’s this week’s reader question:

My Discover card started providing my credit score free each month. What I don’t understand is why it was 814 one month, then 794 the next and now it is 803. Nothing has changed in my life. I didn’t open up any new credit cards, my home has been paid off since 2004 and my car was paid off in 2007. I pay all my bills each month in full and on time. So why the fluctuation in my credit score?

While I have to tip my hat to Discover for doing what’s right — providing free credit scores — seeing your credit score too often, as well as from too many sources, can create confusion.

What’s in Your Credit Score

The credit score offered by Discover to its cardholders is the one of the most widely used credit scoring model, the FICO score. Here are the components FICO says go into that credit score:

  • Payment history is 35%. That’s whether you’ve paid your bills on time.
  • Level of debt is 30%. How much debt you have, how much you’ve borrowed relative to your limits, and a few other factors.
  • Length of credit history is 15%. That’s how long your accounts have been established.
  • Types of credit is 10%. The mix of credit you have, including revolving accounts, installment loans, mortgage loans, etc.
  • Recent inquiries is 10%. Opening several accounts within a short period can lower your score.

Keep in mind that your credit score is based on your credit history, so anytime something changes in your history, your score can change as well.

You’re entitled to one free credit report annually from each of the big three credit reporting agencies by visiting AnnualCreditReport.com.

I’m Not Changing. Why Is My Credit Score?

If I take several pictures of you in the course of an afternoon, would you look exactly the same in all of them? You’ll look basically the same, but there will be subtle differences. Your hair, your posture, your clothes — things are going to change slightly that might alter your appearance.

Your credit score is like that. It’s a snapshot, a picture of your credit taken at one second in time.

If you use credit cards, your balance is always changing. If the snapshot is taken before you pay your bill, you’ll show a balance. Immediately after, you won’t. If you have a mortgage or car loan, the principal drops every time you make a payment. With every passing month, the length of your credit history grows, and closed accounts carry a little less weight.

In short, credit scores are messier than they may appear. Even when you’re standing still, your credit history isn’t. While the factors above suggest your credit score is a simple mix of five components, it’s computed using a complex, proprietary algorithm whose precise components and weighting are known only to the credit scoring model.

Should You Care?

It’s natural to think that if we’ve done things perfectly for decades, we deserve a perfect credit score. Good logic, but perfect scores are exceedingly rare and no score is static.

That’s the bad news, but here’s the good. If you’re not going to apply for credit soon and have a consistently high, albeit slightly fluctuating score, you don’t need to give it a second thought.

This reader, for example, cites three different scores over three months, ranging from a low of 794 to a high of 814. While that presents a cloudy picture to him, to a lender it’s crystal clear. He’s a credit rock star.

While the highest possible FICO score is 850, anything over 760 probably won’t bring faster approvals or lower rates because anything over 760 will earn the best deal from most lenders. Anything above 760 is just bragging rights. And since, according to Bloomberg, 40% of Americans have a 760-plus FICO score, it’s not worth bragging about.

When you should care about your credit score, however, is when you might be borrowing soon. If you’re at or near the magic 760 number, do everything possible to get comfortably above it, especially if you’re borrowing big, like for a mortgage.

Let’s Make This More Confusing

Our reader gets a free FICO score, easily the most popular credit score in the U.S. But it isn’t the only credit score. Equifax has a score that ranges from 280 to 850. TransUnion’s Transrisk score ranges from 300 to 850. The VantageScore 3.0 score ranges from 300 to 850. The Experian PLUS score goes from 330 to 830.

Even your FICO score will differ based on which credit reporting agency’s data — Experian, Equifax or TransUnion — it’s based on. And it gets worse: According to Consumer Reports, FICO serves up 49 different scores to lenders, but only two to consumers. So when you apply for a loan, it’s likely your lender will be looking at a score that’s different from the one you buy.

This post originally appeared on Money Talks News.

More from Money Talks News:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • Jake

    Informative Stacy, thanks.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team