Reasons That a Credit Score Would Change
Your credit score is an important resource that can greatly contribute to your future financial stability, allowing you, for instance, to qualify for low-interest loans. Your debt-management behavior plays an important role in increasing or decreasing your score.
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Score's Function
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A changing credit score reflects your ability to manage your levels of debt. Lenders use this information to decide whether to offer you credit or a loan and what interest rate to charge you.
Time Frame
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Old accounts will be removed from your credit report after a certain period. The Fair Credit Reporting Act says that negative entries, such as collection accounts, should be automatically taken off your report after seven years. Positive accounts may remain for up to 10 years. When accounts are removed, a credit score can either go up or down.
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FICO Score Factors
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The types of accounts you carry will have a 10 percent effect on your FICO credit score. Acquiring a new account will cause your score to be calculated in a different manner, and it could change as a result. Other factors that affect a FICO score: payment history (35 percent), length of credit history (15 percent), amounts owed (30 percent) and new credit (10 percent).
Misconceptions
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Many consumers mistakenly believe that paying off an account on their credit reports will increase their credit scores. Paying an old debt will cause a score to change only if the creditor decides to remove the entry from your report after the payment is received.
Considerations
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Your debt payment history has the single greatest effect on your credit score. Paying debts in a timely manner will increase your credit rating, while missing scheduled payments will result in a lower score.
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