Your credit score is a very important number because it directly affects your ability to get credit cards, loans and other accounts. Some insurers and employers use it to decide whether to issue a policy or a job offer. Credit scores constantly change because they are based on your financial information, which can vary from month to month, depending on your payments and other financial activities.
A credit score is a three-digit score that is calculated based on your credit reports. It gives a quick indication of your creditworthiness and is used by many lenders and financial institutions to make decisions about doing business with you. The most common credit score is the FICO score, which is calculated based on a formula created by Fair Issac Corporation.
Credit scores are calculated with software. The exact program varies, depending on the credit bureau used for the score. The most commonly used score is the FICO, which comes from Experian. Equifax uses Beacon software, and TransUnion uses Empirica.
There are many factors that affect your credit score. These factors often change from month to month, and when they do, they affect your credit score updates. Your payment history on credit cards, loans and other accounts and the amounts you owe are the two biggest factors that affect your credit score. If you miss payments, this will quickly bring your credit score down.
Your credit score is recalculated every time someone requests it, so technically it is updated whenever it is given out. However, it is based on information from your credit reports, and they are typically updated on a monthly basis. This means that it will not change until the next monthly update. If there are no changes to your payment history, the amounts you owe or the amount of credit you have available, there may not be any change in your score.
When your credit score is updated, it may change based on incorrect information that is being reported. You can monitor this by getting a free copy of your credit report each year. You are entitled to a free copy from each of the three credit bureaus. If you find incorrect negative information, file a dispute. The credit bureaus must investigate the matter, and they must remove the information if it cannot be verified. As soon as the change is reflected on your credit report, your credit score will go up because it will be calculated based on the updated information.
Based in Kissimmee, Fla., Barb Nefer is a freelance writer with over 20 years of experience. She is a mental health counselor, finance coach and travel agency owner. Her work has appeared in such magazines as "The Writer" and "Grit" and she authored the book, "So You Want to Be a Counselor."