One of the most common questions I receive has to do with the changing nature of credit scores. One month, one of your scores is, say, 700, and the next month it’s either higher or lower; it’s rarely the same. What is the explanation for this natural ebb and flow?
First things first: let’s dispense with a pesky myth about credit scores. Your credit score isn’t a continuously changing quantity, like temperature or body weight. Your credit score is like a snapshot; it reflects your situation at a given moment in time. As with snapshots, a new score taken weeks, days, or even minutes from now will reflect a different reality – but it doesn’t replace or update the first score; both are accurate reflections of your circumstances at the time they were created.
A credit score is created when it is calculated by one of the three credit reporting companies (CRCs—Equifax, Experian and TransUnion), based on data stored in their respective consumer-credit databases. The only time a CRC calculates your score is when some entity asks for it. Most typically, that entity would be a financial institution, like a bank, or a credit union or credit card issuer to which you have applied for credit or a loan. But landlords and utility companies may also request scores, and you may even request one yourself when you buy a score or check it through a free-score service. Each time someone makes a score request, or inquiry, a new score is calculated using the information in the credit file maintained by the CRC supplying the score. (Some of these inquiries can impact your credit score, but many others, including those you request yourself, cannot.)
Credit scores are determined by considering a variety of factors from your credit reports, including the presence or absence of derogatory information, your types and amounts of debts, how long you’ve had credit, the variety of information appearing on your credit reports, and how often you apply for credit. These factors represent dozens of different individual metrics, each having some influence on your final three-digit credit score. Continual changes in these factors mean it’s very likely that scores based on each report will differ, at least a small amount, every time they’re calculated. But here’s the catch: because your score isn’t part of your credit reports, you may not even know about changes in your credit score unless you track them over time.
If you do track your scores over time and discover that they are always different month after month, don’t panic. Your credit scores will migrate up and down as the information in your credit reports change. Every month, your credit report data becomes older, inquiries age further, credit card balances go up or down, and maybe derogatory information disappears or, unfortunately, lands on your credit reports. All of these things will likely cause your credit scores to be different from the last time they were calculated. This difference in credit scores is perceived as “change,” when in reality your scores have simply been recalculated based on slightly different credit report data.
If you were to compare the information on your credit reports today to the information on your same credit reports 30 days ago, you’ll likely see many subtle differences, principally to the balances of your credit card accounts. These changes result in a different number of points you’ll earn across the many credit scoring metrics, which is why your scores are likely to be slightly different today than they were at the same time last month.