The information found on credit reports is important because lenders use that data to make qualifying decisions. The three major credit bureaus collect financial information to calculate a credit score. But how often is your credit score updated? Keep reading to learn why and how credit scores change and how you can check your credit score!
Ranges of Credit Scores
Credit scores are a numerical representation of your financial history. A credit score typically falls between 300 and 850 points. Consumers with high credit scores get access to the best loan terms because they demonstrate financial responsibility. On the other hand, consumers with low scores will face more challenges.
There are five different credit score ranges that your score can fall into. Knowing where your score falls on the numerical scale can help you better understand your financial position.
- Poor (300 – 579) – Consumers will find getting loans or credit accounts challenging.
- Fair (580 – 669) – Consumers with a fair credit rating may qualify for subprime options.
- Good (670 – 739) – Consumers with a good credit rating are typically deemed capable borrowers by most lenders.
- Very Good (740 – 799) – Consumers with a good credit history rarely miss a monthly payment.
- Excellent (800 – 850) – Consumers have no late payments and demonstrate a superior credit history.
How Often Are Credit Scores Updated?
Your credit score is not static because it is constantly changing based on your recent financial activity. Experian, Equifax, and TransUnion collect information from financial institutions to generate a credit score based on credit scoring models. But how often do credit scores update?
A credit score update occurs when lenders or credit card companies report your financial information to at least one of the three main credit bureaus. Credit reports must be updated first for your credit score to reflect your recent activity. Most credit scores update once a month, but the time frame varies depending on your creditors.
There is no set date for financial institutions to report information to the three bureaus. Keep in mind that some creditors do not report information at all. Financial institutions have to pay to report information to any of the three credit bureaus. The cost can deter lenders from working with credit reporting agencies.
Working with a lender that does not report information can be beneficial in certain instances. Suppose you are late on a car payment. If the lender does not report your data, a late payment will not hurt your credit health or appear on your credit report! However, on-time payments will also not reflect positively on your credit score.
How Often Should I Check My Credit Score?
Since credit scores frequently change, checking your credit score now and then is a good idea. According to the Consumer Financial Protection Bureau, consumers should check their credit scores at least once a year.
Are you trying to build credit as a millennial? In that case, you should check your credit score frequently to track your progress. The best way to improve your credit over time is to avoid late payments on your monthly bills. A single missed payment can decrease a FICO score as soon as creditors report the incident. Late payments will also stay on your credit report for up to seven years. However, a long history of on-time payments can significantly increase your credit rating!
A credit monitoring service could help you keep track of your credit score changes. Credit monitoring services charge consumers a monthly fee to monitor credit reports and alert any changes via text message, email, or phone call. While credit monitoring services are convenient, you can always check your credit reports on your own to avoid paying a fee.
How Can I Check My Credit Score for Free?
There are three main ways you can check your current credit score. You can check your credit card account, visit a nonprofit credit counselor, or use a free credit scoring site.
Check Your Credit Card Account
Most major credit card issuers provide cardholders with the ability to view credit scores for free. Log onto your credit card account online and explore your dashboard. You can usually expect to get free FICO scores, although some creditors offer VantageScore 3.0 instead. You can keep a daily eye on your credit score if you want!
Visit a Nonprofit Credit Counselor
A nonprofit credit counselor can review your finances and provide credit score monitoring. Credit counselors can improve your credit score by helping you take control of your finances, pay off payday loan organizations, and more. You can increase your credit over time when working towards a financial goal. The National Foundation for Credit Counseling (NFCC) is one of the oldest, trusted nonprofit financial counseling agencies.
Use a Free Credit Scoring Site
Plenty of legitimate online sites provide free credit scores to consumers. However, ensure the website is legitimate before providing any personal information. Your information is encrypted if the website URL begins with “HTTPS” and has a lock icon. Credit Karma is one of the best websites to stay up to date on your Equifax and TransUnion credit scores.
Does Checking Credit Scores Lower My Credit Rating?
Checking your credit score does not negatively affect your credit. Looking at your credit score is known as a soft credit check. Soft credit checks, or soft inquiries, do not decrease your credit score. Your credit score is only affected when a financial institution or business does a hard credit check. A hard credit check is attached to an application for credit or housing, so it temporarily lowers your score by about five points. Hard credit checks also appear and remain on your credit reports for up to two years.
What Factors Affect Credit Scores?
Knowing why credit scores go up and down when they update can help you boost your credit score over time. There are five key factors that affect credit scores: payment history, total debt, length of credit history, inquiries, and credit mix. Each primary factor counts for a small percentage of your total credit score calculation. The five factors are shown below in order of importance.
Payment History (35%)
Your payment history is the most crucial factor that determines your credit score. A history of reliable, on-time payments can steadily increase your credit score over time. However, a single late payment can decrease your credit score by as much as five points and result in a late fee. Multiple late payments can drastically reduce your credit score. In addition, many lenders increase the late fee amount after a couple of missed payments. You could end up losing hundreds of dollars from just a few late payments!
Total Debt (30%)
High credit card balances can prevent you from getting a good credit score. The amount of debt you carry counts for 30% of your credit score, so it’s beneficial to maintain a low credit card balance. Financial experts often recommend consumers keep their credit utilization ratio below 30%.
To calculate your utilization ratio, you must first add up your credit account balances and credit limits. Divide your total revolving credit balance by your total credit limit. Then multiply the answer by 100 to get your credit utilization ratio as a percentage. If your percentage is more than 30%, then you know why it may be challenging to build your credit score.
Length of Credit History (15%)
The length of your credit score can affect your credit by up to 15%. But unfortunately, this factor cannot change to improve your credit. But you can build a better credit score by keeping your financial accounts open for long periods. Closing a credit account can potentially affect your credit because it lowers the average age of accounts on your credit report.
New Credit Inquiries (10%)
The number of inquiries you make for funding can prevent you from getting a Tier 1 credit score. Opening too many new accounts within a short period can negatively affect your credit rating. Financial experts advise consumers to agree to no more than six hard credit checks annually. If you have a bad credit score and need emergency funding, apply with lenders that provide bad credit loans. You may not get approval for traditional loans with poor credit. In that case, you may have to apply with multiple lenders (which can decrease your credit).
Credit Mix (10%)
The type of financial accounts you have also affects your credit score. A mix of installment and revolving credit accounts can help boost your credit, but it’s unnecessary. You can still obtain a high credit rating despite having only one type of credit account. Applying for a new kind of account will not drastically improve your credit score.
The Bottom Line: Credit Score Update
Credit scores get updated when financial institutions submit information to credit reporting agencies about your activity. There is no timeline for lenders to provide updates, but many financial institutions provide information at least once a month. If you are trying to improve your credit, know that free sources are available to track credit score updates. In addition, knowing the five factors that affect your credit can help you adjust your financial habits to build a better score.
References:
How Often Does Your Credit Score Update?│Equifax
What Is a Rapid Rescore?│Experian