You’ve decided to check your credit every month. And, since you’ve been working hard to establish a good credit score, you’re a bit disheartened when you learn that your number appears to have dropped over the last 30 days.
Should you also be worried? Not necessarily.
Why the Drop?
Credit scores are dynamic — they change as the information on your credit report gets added and/or updated. Most lenders report to the major credit reporting agencies in 30 day increments, so it’s fairly common to see slightly different numbers from month to month.
A major culprit behind small dips are credit card balances. Credit utilization — how much debt you’re carrying vs. your total available credit limit(s) — is a major factor among credit scores, so if you charged a bit more to your plastic this month than the last, there’s a chance your score is being affected by those extra purchases.
There are other reasons why you might see a small decrease: Perhaps you applied for a new line of credit last month (that’ll create an inquiry, and ding your score). Or maybe you’re looking at a different credit score. Remember, you have more than one. They can vary by lender or loan product and, though all scores are generally based on the same building blocks, each specific algorithm may be crunching numbers a bit differently.
None of this means you should simply discount any changes you may see. A dramatic drop in score, for instance, could be a sign that identity theft is occurring. Or there could be an error on one of your credit reports that is affecting your score. (You can go here to learn how to dispute errors with the credit bureaus.)
If you do see a decrease, some digging might be required to see what is behind it. You can start by pulling your credit reports for free each year at AnnualCreditReport.com — a good idea if you’re seeing really big discrepancies in your scores. You can also view your free credit report summary, updated each month, on Credit.com. It tells you how you’re doing in the five key drivers of your credit scores — payment history, debt usage, credit age, account mix and inquiries — and can help you pinpoint what may have gone wrong or what you can do to ultimately improve your score.
Remember, you can build good credit in the long-term by making all loan payments on time, keeping debt levels low, limiting new credit inquiries and only adding a mix of credit accounts as your wallet and score can afford them.