You know you're supposed to care about your credit score—it can determine how much you pay on any money you borrow—so you check it regularly. But you’ve started to notice a frustrating pattern: One day it’s 760. The next time you look, it’s 754. Then 763 before dropping again to 750.
Your score seems to go up and down, but you’re doing nothing different. You pay your bills on time, you haven’t applied for new credit and your spending habits haven’t changed. So what gives?
Most likely nothing. Credit scores can vary quite a bit, even from day to day. In fact, credit expert Gerri Detweiler, author of “The Ultimate Credit Handbook,” says she’s seen scores for young consumers with “thin” credit files—or those with very few entries on their credit reports—fluctuate as much as 40 points within short time spans.
Still, it’s worth understanding why your score could be different today than it was last week, especially if you’re planning to get a credit card or loan soon and expect lenders to check your score. Here are some potential reasons.
1. You’re not comparing apples to apples.
There are many ways to check your credit score these days. Sites like CreditKarma.com and CreditSesame.com offer them for free, and many credit cards do, too, as a benefit to accountholders. But not all of these scores are the same.
Lenders can use a VantageScore or a FICO score, for example, and the formulas can be applied to data in your credit report from any of the three major credit reporting bureaus: Equifax, Experian or TransUnion. So even the same credit scoring formula can generate different results.
So make sure you aren’t mixing scores when investigating why yours goes up and down so often. (Your scores should be in the same ballpark, but a small difference isn’t a big deal.)
2. Your credit utilization ratio shifted.
Credit utilization, or the amount you owe compared to your total limits, accounts for a large percentage of your FICO score. It’ll be lowest on the day you pay your credit card bill, and highest the day before—meaning that the day your information is captured by the credit reporting agencies can have a sizable impact on your score. Even if you pay off your balance every single month.
If this bothers you, the fix is easy: Pay your bill twice a month, so your utilization ratio is always low.
3. A negative event aged off your report.
Eventually, there is forgiveness in credit scoring. Most negative events that cause your score to dip—from late payments to bankruptcies—fall off your credit report after seven years. And with every passing month, they affect your score less and less. So your score could be changing for the better because, for example, a five-year-old missed payment further diminished in importance.
4. There’s evidence of an error or identity theft on your credit report.
Maybe you haven’t done anything differently, but someone else has done something to you. If a criminal opens a line of credit in your name, your score will likely drop. If that criminal doesn't pay the bill, your score could drop a lot.
Similarly, if there’s a mistake on your credit report, your score can go down. A study by the Federal Trade Commission in 2013 found 5 percent of consumers have a credit report error that can materially impact their credit score. This is the best reason of all to check up on your credit regularly. It’s the best canary-in-a-coal mine warning that something serious might have happened that you need to address.
Detweiler suggests pulling a copy of your credit report if you notice a drop in your score of more than 20 points. (You can do this for free once every 12 months from each credit-reporting agency.) Do this sooner than later if you know you’ll soon be in the market for new credit, so you’ll have plenty of time to take action if something’s amiss.