Why your credit score fluctuates and when you should care

(Courtesy: AP)

KNOXVILLE (WATE) – Have you ever wondered why your credit score fluctuates even though nothing in your financial life changes?

The credit score offered by Discover to its cardholders is the most widely used credit score, the FICO score. There are five components FICO says go into that credit score.

  • Payment history, which adds up to 35 percent. Simply whether you’ve paid your bills on time.
  • Level of debt, 30 percent. How much debt you have.
  • Length of credit history, 15 percent. How long your accounts have been established
  • Types of credit, 10 percent. The mix of credit you have, installment loans, mortgage loans, etc.
  • Recent inquiries, 10 percent. Opening several accounts, which require inquiries, within a short period of time can lower your score.
  • Keep in mind that your credit score is based on your credit history, so anytime something changes in your history, your score can change as well.

Your score is a snapshot, a picture of your credit taken at one second in time. If you use credit cards, your balance is always changing. If you have a car loan or mortgage, the principal drops every time you make a payment. With every passing month, the length of your credit history grows and negatives carry a little less weight.

It’s natural to think that if you’ve done things perfectly for decades, you deserve a perfect credit score. That’s good logic, but perfect scores are exceedingly rare and no score will remain exactly the same for long. That’s the bad news, but here’s the good. If you’re not going to apply for credit soon and have a consistently high score, don’t give it a second thought.

While the highest possible FICO score is 850, anything over 750 probably won’t bring any faster approvals or lower rates because that’s the minimum score that earns the best deal from most lenders. Anything above 750 is just bragging rights. Since more than half of Americans now have a 750-plus FICO score, it’s not worth bragging about.

You should care about your credit score when you might be borrowing money for that house, car or big home improvement project. If you’re at or near the magic 750 number, do everything possible to get comfortably above it, especially if you’re borrowing big.

If you pay your bills on time, all the time, for long periods of time, you probably have a great credit score. Unless you’re about to borrow, don’t obsess about it. You do need to check your credit history from time to time to make sure there are no mistakes and that it properly reflects your balances and payment history.

You certainly want to check your FICO score if you’re about to borrow, but pay no mind to minor fluctuations.

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