Many people who decide to purchase a vehicle or property find out that their credit score is more important than they think. A lot of people wonder why their credit scores tend to fluctuate throughout the year. There is no single reason for this, but it could be due to a number of different variables. Credit reporting agencies analyze ridiculous amounts of consumer trends to determine whether issuing a loan is a good idea.
The first thing to consider is the fact that there are three different credit reporting agencies. Each of these agencies can demonstrate different fluctuations. You may have an unpaid medical bill. The bill gets sent to collections. Collections reports to one or two of the agencies. Your Experian credit score may now seem to randomly fluctuate because of this.
Many people also don’t realize that pulling credit often drops a credit score a few points. This seems like a strange idea. You may get approved for a credit card or auto loan, but your credit still drops three points. The real reason for this is a bit more complicated. Many people believe that it is simply because these agencies know people that constantly inquire for credit are a greater risk.
The biggest reason that credit scores fluctuate is usually because of credit card debt. Credit card debt decreases over time because the debt is paid over time. You may see a sharp drop in your credit score because you spent $300 on your credit card one day. You may see it gradually scale upward over time as you inevitably pay the debt off. Defaulting on your payments is the best way to let the credit reporting agency know that you are a risk. One way to reduce penalties from using credit cards is to pay off the debt. Another way requires a bit of rigging. It’s thought that you can open multiple accounts with high credit limits. Your credit limit is compared against your credit spending. It’s important to note that having an extremely high credit score usually isn’t more beneficial than having a good credit score.
Many people don’t realize that credit scores only work in theory. There is no way for a bank to ever know if someone is going to default on a loan. Banks have to make their best judgement calls with the knowledge provided.