Credit scores fluctuate on a monthly basis in some cases. Do not panic! Your credit score can go up or down for what appears to be no reason at all. There are a lot of changes happening right now with the credit reporting agencies. If you have not made any significant changes and your credit score goes down, the first thing you should do is evaluate your credit report. Look for any changes. Monitor your credit report frequently in order to have something to compare to your current report. Retrieve your free credit report from www.annualcreditreport.com. The free reports from all three bureaus can be obtained once on a rolling 12 month basis. You can also utilize free credit sites, such as www.creditkarma.com or www.creditsesame.com. At these sites you will be able to view your credit report and your credit score, obtain helpful tips, and read recommendations on how to improve your credit score. When you see these fluctuations, here are some things to look for in your credit report:
- Recently closed accounts. The average age of your credit accounts can be a negative or a positive. Closing a credit card account, especially one with a long history, can affect your score. The closed account no longer aids you in a positive way. If the account is closed and you still owe a balance, it certainly affects your utilization percentage. Read my article, “To Increase or Not to Increase, to learn all about how utilization percentage can effect you and what to do about it.
- Credit card limit changes. A lowering of the limit can negatively affect your score. If the credit card company lowers your limit and you continue to hold a balance, the above referenced utilization scenario also applies. An increase in your credit limit typically doesn’t change your score in a negative way. It may actually increase your credit score.
- Applying for credit or inquiries. Inquiries lower your credit score, typically by just a few points. However, often times, if you absolutely need the credit, then it’s perfectly fine to take the negative hit. The reward is higher than the negative side effect of not obtaining the credit you desire.
- Collections, judgments, garnishments, and liens are all negatives on your credit report and will lower your credit score immediately. Attempt to prevent this at all cost. Negotiate settlements prior to these types of accounts showing up on your credit report.
- This one may blow your mind, but NOT using credit can lower your credit score. This does not mean go buy a car every year or refinance your home; however, using your credit cards periodically is good for your credit score. Some skeptics and conspiracy theorist may think this is a ploy by the credit cards companies and banks in conjunction with the credit bureaus to get you more in debt. I’ll leave the conspiracy for you to discuss among your friends. It is true that not using credit can lower your credit score. Your credit report is a history of how well you handle (pay) your bills. If you never use your available credit, the credit card companies have nothing to report. My suggestion is to treat yourself and/or significant other to dinner and pay using your credit card at least once a quarter. To avoid paying interest on the card, make your payment BEFORE you receive your statement. This way it’s almost like paying cash for the dinner and you may even receive some reward points.
If your credit score increases, thank the credit gods. FYI, there are no credit gods or magic fairies that can increase your score. However, there are some simple ways to do so. Using your credit cards is just one way to increase your score. Managing your credit by paying your bills on time, keeping your overall balance to limit ratio below 30%, and applying for credit only when necessary are some of these ways.
Credit score fluctuations are common. Keep calm, like the t-shirts say and use the tools provided in this article. Stay tuned…come back for more great reads about increasing and protecting your credit score.