Editor's choice: Experian Credit Report
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Your credit score is an important number, but it’s not fixed. It’s calculated using the information in your credit report and lets lenders know your level of risk as a borrower. However, it’s not uncommon to check your score and then get an entirely different score a month later.
What exactly goes into your credit score and what can make it can change so suddenly?
It can be confusing when you think not much has changed with your financial habits and your credit score has dropped a few points.
Here are a few common reasons why your credit score would drop:
It’s not just your credit activity that could have an impact on your credit score, you could see a slight change in either direction due to FICO constantly updating their scoring formula in order to assess borrowers in the most accurate way possible.
Due to the amount of information that’s used to calculate your credit score, it’s easy to see how your score can fluctuate.
Here’s why you might see a bump upwards in your score:
Your score will take a slight dip, but this is because the lender you’re applying for a loan with is pulling your credit report to assess your risk factor — this is known as a hard inquiry.
However, if you’re shopping around for a big loan and apply with multiple lenders to find the best rate, it will typically only count as one credit inquiry on your credit report if the inquiries were made between a 14 to 45 day window.
Your credit score is updated monthly based off the data in your credit report.
It’s important to note that if a credit provider requests your credit report or credit score (or both) from a credit reporting agency, it will be calculated at the time of the request. So if a lender orders your credit score, it may’ve moved up or down from the last score you saw depending on your recent borrowing behavior.
Experian, Equifax and TransUnion receive positive and negative information from lenders every month about millions of Americans. However, not every credit provider reports to all of the credit reporting agencies — lenders pick and choose which and how many bureaus they report to.
Data reported to the credit bureaus are:
Keeping a sharp eye on your credit report and score is the most effective way to know what’s going on with your creditworthiness. Although your credit score isn’t included on your credit report, you can get a free credit report from each of the three credit bureaus once a year and inspect for errors or suspicious activity.
There’s also the option of paying for a credit monitoring service that alerts you whenever there’s any activity related to your credit report so you can know exactly what’s going on at all times.
As you see, there can a number of ingredients baked into the cake that is your credit score. When minor fluctuations happen, you shouldn’t worry too much, but if your score drops significantly, order your credit report and score to investigate the reason.
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