Once your credit score has deteriorated or becomes poor, it is really tough to improve the same. Do not forget that your credit score is a big influencer for the lender to decide whether they should approve your loan application or reject it outright. Sadly though, once it has gone down, it is disillusioning to see how slow the change is and yet even a month can create a distinction.
However, grooming your credit score can be quicker than what you had initially expected. You may be surprised to know how frequently your credit score can improve. In fact, you may even see your rating progress faster than what you had anticipated.
A credit report contains your credit score
There are credit bureaus that prepare your credit report. These reports contain the information of your financial standing in terms of credit scores. In fact, a credit report is a detailed document, which describes a consumer’s history with the management and handling of borrowed money. There are 3 key credit bureaus that maintain and gather this data. A credit score is usually computed by a bureau after a lender requests for it. There is a specially designed credit scoring model such as FICO or VantageScore that is used for running your credit report. The end outcome is a mathematical score, which is a representation of the data on a specific report at that particular moment.
A consumer may have multiple credit scores based on the scoring company that was used, the credit bureau that pulled the data from and the purpose for which the score will be used.
In order to get a response on how frequently your scores can change, it is imperative to learn the frequency at which a credit report gets updated.
Your credit information is typically reported by lenders on a monthly basis
Usually both positive, as well as negative information is reported by lenders to all the major credit bureaus once every month. Thus, it is possible to see some changes in your credit score every month based on the information that is getting featured on your credit report. The 3 key credit bureaus in the United States are TransUnion, Equifax, and Experan. A lender may either report to any one, two, all of them or even none of them. In a majority of cases, big banks may report to all these credit bureaus.
Do you want to know the kind of data that go to these credit bureaus every month from the lenders?
The data about your account or you may constitute of the following:
- Recent inquiries on credit
- Activities conducted by authorized users
- Account balance
- Status of account (in collections, defaulted, delinquent, closed, in good standing)
- Timeliness of the last payment (whether the borrower was late for a month or even more than that period)
It is possible to see occurrence of big fluctuations
A majority of changes in the credit scores typically take place incrementally. Your score may gain a few points or go down by some points. In the subsequent month, your score may again go up by some more points. Thus, over a period of time, the gains can add up to become big. However, you are not likely to witness a big swing within a brief time period. Yet, there could be exceptions too. Here are some following contributors that may lead to a significant fluctuation of about 20 points or even more than that in your credit score within a time period of one or a couple of months
Change on the debt load of a credit card
A key influencer on the credit score is the credit utilization ratio that is the amount one owes as compared to the credit limit or the amounts owed. An increase in the debt of your credit card may affect your utilization ratio and that can cause your score to dip.
Most of you will agree that your payment history is a big influence on your credit score. A drastically late payment may pinch you eventually as it gets reflected on your credit report. Your credit score may go down significantly if you are yet to make your bill payment although a month or more than 30 days have passed.
You should also remember that a delinquency for 60 days is even worse than a delinquency for 30 days. Thus, it makes sense to return to good standing as quickly as possible.