Q. Lately, I have been receiving emails from Experian telling me my credit score has gone up or down a few points. Recently, I went from “Excellent” to “Very Good” for no apparent reason. I continue to pay all my bills on time and never carry a balance. Why does my credit score change?
— Credit concerned
A. Like it or not, the credit bureaus, and credit scores, are here to stay.
Even if you’re smart with how you pay your bills and how you use credit, there are times when credit score changes are a mystery.
Here’s what we do know.
Lenders use credit scores to evaluate the risk of lending money and to mitigate losses, said Paul Criscione, a certified financial planner with Freedom Capital Management in Colts Neck.
Credit scores also help determine who qualifies for a loan, the amount and interest rate, he said.
And, lenders also use credit scores to determine how to bring in the most revenue, he said.
Voila, the rise of the almighty credit reporting agencies.
Criscione said as of July 1, 2017, improved standards for public records used in the databases of reporting agencies means credit scores can change more frequently,
Part of this change calls for a majority of civil debts and tax liens to be excluded, he said.
There are several ways to keep up on your credit report and score.
Americans are entitled to one free credit report every 12 months from each of the three credit bureaus, but you’re not entitled to receive a free credit score, Criscione said.
“However, some credit card companies are printing your credit score on your monthly statement free of charge,” Criscione said.
If you see something on your report that you believe is incorrect, you can dispute a reported item under the Fair Credit Reporting Act (FCRA). The credit bureaus have 45 days to investigate.
It’s difficult to say why your score went from “Excellent” to “Very Good” without any other information. That’s because credit scores come in a variety of flavors because they are produced by different companies for many different purposes and each may use a slightly different calculation and scale, Criscione said.
The FICO score, created by Fair Isaac, uses a scale of 300 to 850, while the newer Vantage Score uses a scale of 501 to 990.
Personal or demographic information such as age, race, address, marital status, income and employment have no bearing on your score, Criscione said.
In general, five major categories make up your credit score.
Here’s what you can expect.
Payment history, including account payment information, delinquencies and public records, make up 35 percent of your score.
Then how much you owe, including the amount of available credit you’re using on revolving accounts, is weighted at 30 percent of your score.
Your length of credit history, which includes how long ago you opened accounts and time since the last activity, makes up 15 percent of your score.
The types of credit you use and the mix of accounts you have make up 10 percent, and the pursuit of new credit, including hard credit inquiries and the number of recently opened accounts, makes up the remaining 10 percent, Criscione said.
So why did your score go down? There’s no way to know exactly, but it’s possible you opened a new account, were using a lot of your credit or did something else that temporarily moved your score.
If you continue to have good habits, your score will probably go back to where it usually stands.
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