Did You Know:
How common credit activities impact credit scores?

Most adults in the United States have a consumer credit file at one or more of the credit reporting companies (CRCs) and lenders report the activity on each credit account on a monthly basis to the CRCs, which is then reflected in the consumer’s file at that CRC.

The impact on your credit score from each single credit activity appearing in your CRC credit file varies, but generally there are behaviors that have good or bad consequences. The figure below explains how some credit-related actions and events generally impact credit scores.

[TABLE: Impact of various actions on credit scores]

The actions shaded green for “low risk,” which include paying bills on-time and using a number of different types of loans, obviously signal that you are handling your credit wisely. The actions in the red-shaded risk areas, which include paying multiple loans late and declaring bankruptcy, signal that you are having problems making payments on-time.

The activities in the yellow-shaded risk area can be typical everyday actions such as opening a credit account or a credit inquiry, but still can cause your credit score to drop slightly. This is because the millions of transactions and past consumer behaviors used to create and test credit score models demonstrate that consumers who partake in these types of activity are riskier; when risk increases, scores drop. But the score drops are minimal for the actions in the yellow area.

The small drop caused by the activities in the yellow area can be made up very quickly. For example, your score might go down slightly because an inquiry1 was reported to a CRC and you opened a new credit card account. But if the CRC is notified that your payments for the new account are on-time and your balance is not excessive, your score begins to benefit from the positive information created as a result of the new credit account.

Information, especially negative information, doesn’t stay in your credit file forever. Both positive and negative information reported by lenders drops off the file after a set period of time; the only negative item that remains in your credit file indefinitely is a tax lien.

The impact these items will have on your credit score will diminish over time. For example, although a late payment stays in your credit file for seven years, it does not continue to drive down your credit score for the entire period. It is even possible to improve your credit score after a bankruptcy. This is because a credit score can and will change as the information in the credit file becomes older and less impactful. In other words, information is weighted less by credit scoring models as it ages.

[Impact from a negative event in a credit file diminishes with time]

Here’s what you need to know about negative information in your credit file:

  1. So long as additional derogatory information isn’t added to your credit file, the negative impact of all of these events on your VantageScore credit score diminishes with each passing month from the time the event occurred, as illustrated in the graph above.
  2. Your score will experience the greatest drop in the first month after a negative event.
  3. As time goes by, a negative event will have less and less impact until at some point it has no impact whatsoever, even though the timeframe for which the event remains in your file hasn’t ended. Typically, after two years most negative items have little impact on your credit score.
  4. Bankruptcies and public records have the biggest impact on your credit score, causing the largest drops and taking the longest recovery time.

With ongoing, good credit management, your credit score will improve and offset these events.

[1] Most credit score models accommodate the need for consumers to shop for the best interest rate for a single loan by inquiring with multiple lenders. The VantageScore model interprets all inquiries within a 14-day window as a single inquiry.

Valued partners:
VantageScore Licensees:
Equifax Experian TransUnion