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Slight drop in credit score? Don’t worry

Erica Sandberg

March 22, 2016

Q Hi Erica,

I have been keeping watch on my credit score ever since I got a credit card. I check my FICO score almost every month. My score was going up until last month when it dropped by 7 points to make it 707. I didn’t change anything. I do everything by the book — no debt, pay on time, yada yada. I’ve only had one credit card,  and I got it in April 2015. Why did my credit score drop? What should I do now? — Jess

A Dear Jess,

I can’t tell you exactly why your credit score took a slight downward turn, but I can tell you to relax and celebrate your success. You certainly were doing very well, and based on the information you’ve shared, you still are.

With only one credit card in action, a FICO score above 700 is an achievement. FICO has a scale from 300 to 850. Your score indicates that you have sufficient positive information on your credit reports to give other creditors confidence that if they do business with you, you’ll probably treat the account appropriately.

However, why credit scores fluctuate slightly can be a mystery. As with all credit scoring systems, FICO delves into your credit reports on a monthly basis and plugs the financial data into mathematical models to produce that month’s score. While the factors  used to create a credit score are public knowledge, the exact algorithm (or recipe) is private. Think of these credit score factors as ingredients on a can of soup: You see what’s inside (water, tomatoes, salt, and so on), but not the measurements or other key details.

For a FICO score, we know that payment history, credit utilization, length of credit history, types of credit in use and pursuit of new credit are factored in, and in that order. And we know recent activity matters more than older activity.

So what could have caused that slight dip in your credit score? Maybe FICO swooped in before you had the chance to make your payment and calculated your score based on the balance listed. A good way to avoid that is to pay well before the due date.

Still, your current score is considered good. If you charge every month, pay your bill in full and before your score is calculated, your credit score should rise. You can increase your score faster by opening another credit card and using it the same responsible way. An installment loan can help, too, as it will add to your credit mix, because lenders like to see that you can handle all sorts of credit instruments. But don’t get a loan just to boost your credit score.

In the meantime, you may want to check your FICO score a little less frequently. It’s not impacting your credit rating, but what you’re doing now is like someone trying to lose weight who jumps on the scale every day. You’ll drive yourself crazy trying to figure out the reasons for the slight variances, which are inevitable. Checking your credit scores once a quarter is usually sufficient. While you’re at it, pull your credit reports from annualcreditreport.com on the same schedule — once a quarter. You’ll want to be sure that the information that is being reported about you is correct — and to take steps to update it if isn’t.

Got a question for Erica? Send her an email.

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