Credit Score Fluctuations Are Normal

At the beginning of every new year, many Americans take steps to improve their finances, conducting an annual fiscal housecleaning to ensure they can maintain their lifestyle and make necessary payments through the coming months.

For some, this means ordering a free credit report from one of the major credit reporting agencies and checking for errors and inconsistencies. However, many folks are unaware of certain credit score basics and are often perplexed by how much their credit scores can vary from day to day in what seems like random fashion..

Consumers should be aware that this process is normal and, in most cases, not cause for concern. Just like savings account and credit card balances, a consumer’s exact credit score can change every day, based on a number of applicable transactions.

For example, every time an individual uses an ATM or swipes a debit card, the bank account associated with that card will fluctuate. Likewise, every time a consumer asks for a loan or makes a credit card payment, a credit score can go up or down accordingly.

Scores can also vary based on when a consumer requests his or her score and which credit reporting agency it’s requested from.

“Credit is dynamic information,” Greg Holmes, national director of sales and marketing at Credit Plus, a Salisbury, Maryland-based company that serves the mortgage business, told Marketwatch. “It’s constantly changing. It’s up and down and constantly moving. It depends on how much information is coming and going in and out of that credit report. It’s whatever time of day and month you pull the report.”

Because of this constant movement, a credit score can change from the time it’s reported to the time a loan application is filed, especially if it’s filed near the end of the month.

Credit history is one of the biggest factors in a credit score.

Lenders keep track of how often an account balance is paid off, how frequently it’s used, and whether the owner has been making necessary payments.

Missed payments — especially those classified as delinquent — can affect a credit report. In recent months, many consumers have been written out of the credit system because of unemployment, foreclosure, and other symptoms of the weak economy. Due to this, many consumers will likely benefit by making their payments in a timely manner in 2011.

For the easily forgetful, many lenders offer online banking, which allows for automatic payments to be made from an account to the institution. Consumers who choose not to use this payment method might benefit from setting reminders for themselves — for instance, in their e-mail program or on their cell phone — to avoid late payments.

Along with building a better credit history, making timely payments can also increase the quality of the credit card offers consumers receive. This will allow those who make a financial turnaround in 2011 to take advantage of the best rewards in the coming years. If recent trends hold, such rewards will likely be in the form of increased cash back, purchasing incentives, and low annual percentage rates (APRs).

Consumers who are looking to improve their finances in the new year will also likely benefit from establishing manageable and concrete goals. By assigning specific numerical benchmarks and making plans to meet them, individuals can better track their improvements over the course of the year.

As always, consumers will see their credit scores rise or fall according to their spending and payment habits. People looking to improve their financial lot in life would be well advised to remember that, short of winning the lottery or experiencing some other monetary windfall, such financial improvements take time and dedication