Credit 101: Credit Score Changes

November 28, 2012

It’s been a while since we’ve visited the Credit 101 classroom. But a topic bears further review. In today’s post, we’ll flesh out some of the details and try to tackle two of the most common questions we receive:

How often do credit scores change?

Your credit score changes when something on your credit report changes. This includes a number of possible factors, like missing a payment on a loan or credit line, applying for new credit, an adjustment in your credit limits, paying down debt, defaulting on a loan, closing an old account, declaring bankruptcy, and lots more.

One thing that’s important to remember is that for some of these changes, it takes a while for them to reflect in your credit report. For instance, a lot of Credit Karma members are curious why their current credit card balances aren’t reflected in the account. The reason for this is because creditors report new balances to the credit bureaus just once a billing cycle. That means you could pay off a high balance on your credit card and not see the update to your credit report and score for 30 days. That’s why it’s important to keep your credit card utilization to 30 percent or less that your total credit limits, unless you know the exact date that your creditors report your balances. (And that date can vary from creditor to creditor.)

This is also true in some other cases. If you refinance an auto loan, for instance, it could take a while for the new loan to be straightened out at the credit bureau, meaning that two loans could temporarily show up on your credit report. This is one reason why it’s important to stay away from making big credit moves like refinancing before you apply for new credit like a home loan.

Now that you know that creditors can take a while to update the credit bureaus and credit bureaus can take a while to smooth things out, what does this mean? It means that your credit score can change often, but it also means that it could take a while for your credit score to change.

Why hasn’t my credit score changed?

Another common question we receive here at Credit Karma goes something like this:

“I’ve paid off my debts. Why hasn’t my score changed yet?”

First of all, it’s important to remember that there’s usually never just one new factor influencing your credit score. While there are some common factors that go into your credit score, lots of things could be at play. After all, your score encompasses years of your financial life. For example, if you paid off a large portion of your credit card debt but an old account falls into collections, your score likely wouldn’t improve, even though you might not instantly find out about the collection account. (You can make sure you’re alerted of things like that with Credit Karma’s free credit monitoring.) The derogatory mark would overshadow the reduced credit utilization.

The reverse could also be true. You could have high credit utilization that’s bringing your score down, but at the same time have an old derogatory mark fall off of your credit, causing your score to increase. Your financial and credit actions aren’t isolated.

What should I do?

First of all, remember that a small drop in your score isn’t abnormal or something to be alarmed about. A 10 of 20 point fluctuation can be perfectly normal. Secondly, remember that you are not your credit score. While you should keep an eye on your credit, it’s not helpful to constantly fret over your score. This is especially true if you’re making all the right credit moves. Here’s how to make certain that’s true:

  1. Monitor your credit on Credit Karma. If you’re opted into credit monitoring, you’ll get an email when an important change occurs in your credit report, like a new hard inquiry or delinquent payment.
  2. Research before you apply. When you’re ready for a new credit card or loan, use Credit Karma’s approval odds as well as member reviews to help you make your choice.

I hope that helps clear a few things up about credit score changes. Have a question? Feel free to leave it in the comments. I’d be happy to answer it!

Have a Karmic day!

Bethy, Social Media Maven