Your credit score is one of the most important numbers in your life, because it affects your overall financial security. A good credit score is essential to getting affordable credit for the things you need and want.
Savvy consumers work to develop good financial habits to help their credit scores grow. Some of them closely monitor that growth, using:
Sometimes those numbers change, seemingly for no reason. Why would your FICO score be up a few points one month and down a few points the next month, even though you can’t remember doing anything differently?
You’re not imagining things: A credit score can change fairly often. Don’t panic! Understanding why these changes occur will help you keep your eye on the long game.
Every 30 to 45 days, creditors send the credit agencies information on your bill-paying habits, total debt, new credit applications, and the like. Each time a major credit bureau gets new credit information, it updates your report and recalculates your score. Your credit score is based on your credit report – a compilation of financial data collected by the three major credit bureaus (Equifax, Experian, and TransUnion). The best-known credit scores are the FICO® score and the VantageScore.
For example: how long does bankruptcy stay on your credit report? If you have filed for bankruptcy, understanding how it affects your credit report is crucial in building back your credit.
Since creditors don’t send their information to all three companies at the same time, your score could change from one day to the next. Or even more often: According to Experian, scores taken as little as an hour apart can show differences.
This helps explain the time lag between new purchases and any impact on your credit score vs credit report. Ever been blindsided by a big expense that you can’t afford but that you also can’t delay? After putting that car repair or emergency dental work on a card, you dread checking your credit score the next day – but it doesn’t look any different.
It will, though, within 30 to 45 days.
Your credit score probably will update every month, since creditors could be reporting as often as every 30 days.
If you use more than one form of credit – for example, student loan plus credit card plus mortgage – then you’ll likely have information reported each month. As noted, any time new information is received – a credit card bill paid, a car loan approved – the credit reporting bureaus recalculate your score.
How often is your credit score updated? Could it be updated daily? Possibly, if creditors send new information every single day of the month. For most consumers, that’s unlikely.
Again, your credit score could potentially update on any day of the month, and possibly more than once a month. It depends on how many creditors you have and when they report.
In other words: You can’t always time your credit card or loan payments to a specific day of the month for maximum impact. What you can do is make sure you don’t miss the deadline, since on-time payments make up 35% of your credit score. This way you can avoid having to search for ways on how to remove late payments from a credit report as a penalty.
Make payment in full whenever possible; contrary to popular belief, carrying a balance is not good for your score and could eventually get you into a tough situation where you might be going. You should use no more than 30% (and ideally no more than 10%) of your available credit.
You were finally able to zero out that credit card balance, thanks to a holiday cash gift and income from your side hustle. Go you!
A week later, you check the credit score posted on your credit card statement – and it doesn’t look any different. How long should it take for your credit score to go up after paying off debt?
That depends. Again, it can take up to 45 days for a creditor to give that info to a credit reporting agency. Try not to obsess over seeing the number change right away. Instead, wait at least one month to check, and prepare to wait up to an extra couple of weeks. If you’re not able to pay back your debt as quickly as you’d like, check out a credit builder loan as an alternative to building your credit.
Although this sounds counterintuitive, your credit score might actually drop once you’ve paid off a debt. A couple of possible explanations include:
This affects the “credit mix,” or the kinds of credit you have. Credit mix makes up 10% of your credit score.
In addition, closing out a loan affects the average age of your credit accounts. Credit age is one aspect of the “length of credit history” calculation, which makes up 15% of your credit score.
This could affect your score in a couple of ways:
By reducing your credit age, especially if this was the card you've had the longest.
By reducing your amount of available credit. An example: You have three credit cards totaling $36,000 available credit and you owe $14,000; that’s an almost 34% credit utilization, which is not great.
So you decide to pay off the smallest balance ($2,000) and close that card. However, you now have only $24,000 in available credit – and a $12,000 balance. This new 50% credit utilization ratio is not a good look.
Some credit scoring models exclude collections accounts once they’ve been repaid. In that case, you might see a credit score change in 30 to 45 days.
And if another credit scoring model is being used? The debt will stay on your credit report for seven years as a “Paid Collection.” That’s not ideal. However, your future lenders would likely rather see a paid-off collections account than an unpaid one. Sure, you had money issues – but ultimately, you paid what you owed.
Note: Sometimes a collections account can be removed from your credit report. It’s worth a try.
While your score may go up or down from week to week, or even day to day, these are short-term credit score changes that generally don’t matter.
What’s more important is the range into which the credit score falls. If one month your VantageScore is 680 and the following month it’s 677, that doesn’t matter. Both numbers are still in the “Good” range.
Don’t obsess over a few points. Instead, focus on developing good money habits like making sure you avoid making a late payment and staying under the credit limit to ensure a healthy credit score over the long haul. Doing so will mean a more secure financial future.
Lauren Bringle is an Accredited Financial Counselor® with Self Financial – a financial technology company with a mission to increase economic inclusion by helping people build credit and savings. Connect with her on Linkedin or Twitter.