Understanding and Managing Your Credit Score Fluctuations

Credit scores can often fluctuate, even for those who meticulously manage their credit utilization and consistently make on-time payments. This article explores some common reasons for these fluctuations and provides guidance on how to maintain a stable credit score.

Common Causes of Credit Score Fluctuation

Despite your diligent credit management practices, your credit score may still experience minor fluctuations. Here are some explanations behind these changes:

Credit Reporting Timing

One of the primary reasons for credit score fluctuations is the timing of credit reporting by creditors. Creditors and credit bureaus may report account information at different times, which can cause temporary score impacts. For example, a recent payment or credit limit adjustment may be reflected in your score, but it will normalize once the next update occurs.

Credit Mix Changes

Opening or closing a credit account can affect your credit mix, which is a factor in your credit score. Even small changes in your credit mix can lead to slight fluctuations in your score. Whether you open a new line of credit or close an existing one, these actions can cause temporary changes.

Credit Inquiry Impact

Applying for new credit can lead to a hard inquiry, which can cause a minor drop in your score. This point reduction can be observed temporarily, followed by a recovery as the inquiry ages. Hard inquiries are a common reason for short-term score fluctuations.

Age of Credit Accounts

The average age of your credit accounts can also affect your score. Opening new accounts or closing older ones can change the average age, leading to small fluctuations in your score. It's important to consider the impact of closing long-standing accounts, as this can lower the average age of your credit history.

Credit Bureau Variations

Different credit bureaus may have slightly different scoring models or receive information at different times, leading to minor fluctuations in your score. For example, if your mortgage account was 16 years old and you paid it off, the average age of your accounts would decrease, potentially affecting your score.

Scoring Model Variations

Checking your score from different sources, such as a bank versus a credit monitoring service, may result in variations due to the use of different scoring models. These differences in scoring methods can lead to minor discrepancies in your score.

Real-World Examples and Considerations

It's important to understand that these fluctuations are typically normal and do not indicate a severe credit issue. However, if you encounter significant drops or other inconsistent behavior, it’s worth investigating further.

A personal example involves a scenario where a homeowner paid off their mortgage, and their credit score dropped from 850 to 804. In this case, the reason was a change in the average age of their accounts. The mortgage account, which was 16 years old, was no longer part of their credit mix, leading to a temporary drop in the score.

While a credit score of 850 is impressive, it's essential to recognize that a score of 804 could still reflect a strong credit profile. Credit scores can gradually improve over time, but previously established age can be difficult to regain.

For those looking to maintain their credit score, consider the potential impact of closing old accounts. For instance, if a homeowner is thinking about closing some accounts at Wells Fargo due to poor customer service, they should evaluate how this might affect their overall credit profile. Closing long-term accounts could lower the average age of their credit history, potentially impacting future scores.

It is advisable to maintain a diverse mix of credit, make timely payments, and avoid incurring high levels of debt to keep your credit score healthy and stable.