Unexpected FICO® Score Changes
myFICO subscriptions include FICO® Score monitoring. This means that every time we detect a change in monitored credit file data, we provide the latest FICO Score (version 8) in the alert details.
Consumers occasionally ask us why an updated score from a change in monitored credit file data can go in unexpected directions. Broadly, there are two main reasons why these score changes can go up in response to apparent "bad news" or go down in response to apparent "good news."
First, the event described in your alert may not be the only thing driving the change in your score. FICO Scores are calculated using the entire credit file as of the date of the alert. Many changes to credit files are monitored, but not all changes are monitored. Other changes can happen in your credit file and affect the FICO Score.
For example, the passing of time can change the age of accounts in your credit file, which can impact a FICO Score. You could receive an alert for something else, like a small balance increase, which shows an unexpected increase in your FICO Score. It is likely that the minor balance increase didn't cause the score increase (although read on below to see how that can actually happen). It is more likely that an unreported change—like an increase in age of accounts—caused the increase in score.
Second, while the event described in your alert may be the main thing driving the change in your score, the resulting score change can still be counterintuitive. The FICO Score model is a sophisticated algorithm designed to predict credit risk. As a result, it may not be clear why your score changed the way it did. In the next section, we provide a variety of examples of these "counterintuitive" score changes.
What are examples of counterintuitive score changes?
You do nothing and your score gets better
Generally, the passage of time can be favorable for your FICO® Scores. If you have no new negative events and your balances decrease or remain unchanged, you can usually expect your FICO Scores to go up over time. There are several reasons for this—below are a few more common reasons. First, as time passes, negative items like late payments and bankruptcies can "fall off" your report. Second, as other negative items on your credit report age, they gradually have less impact on your FICO Scores. Third, inquiries have no impact on your FICO Scores after a year. Fourth, simply having a longer credit history is considered a positive for your FICO Scores.
Note that being entirely inactive with your credit may result in becoming unscoreable. FICO Scores require there to be activity reported on at least one account in the last six months as part of the minimum scoring criteria.
You close an account and your score drops
Closing a revolving account (like a credit card) can have a negative impact on a FICO® Score for two reasons. First, closing down an account will likely reduce your total amount of available credit and increase your credit utilization (the percentage of available credit being used), which can negatively affect your FICO Scores.
Second, closing an account can affect your credit mix. FICO Scores consider the different types of credit accounts being used or reported, including credit cards, retail accounts, and installment loans (like auto loans and mortgage loans). People who demonstrate responsible use of different types of credit are generally considered less risky to lenders.
You pay off a credit card and your score decreases
Paying off a credit card or paying off your total credit card balances to zero can have a negative effect on your FICO® Scores. To learn more about this effect, read our Credit Education article about Amount of Debt.
Remember that your current account balance isn't necessarily the balance that shows up on your credit report. Your credit report will reflect the account balance that your lender reported to the credit bureau. This is often the balance from your latest monthly statement—but not always. Even if you pay your credit card balances in full each month, your account balance won't necessarily show on your credit report as $0 at the time the account balance is reported by your lender.
You pay off a car loan and your score goes down
Paying off a car loan can affect your credit mix. FICO® Scores consider the different types of credit accounts being used, including credit cards, retail accounts, and installment loans (like auto loans and mortgage loans). People who demonstrate responsible use of different types of credit are generally considered less risky to lenders.
You get a credit card limit increase and your score decreases
An increase in your credit card limit will likely result in a lower credit utilization, which generally is positive for your FICO® Scores. However, the lender will typically post an inquiry before granting the limit increase. The loss of points from that inquiry can be greater than the increase in points from the higher limit. The good news is that the negative effect from an inquiry is not long lasting. In fact, FICO Scores only consider inquiries from the last 12 months, although inquiries can remain on your credit report for up to two years.
You apply for a car loan or a mortgage and your score does not change right away
Certain loan types commonly involve rate-shopping (applying with several different lenders to get the best rate), including mortgage, auto and student loans. For these loan types, FICO® Scores bypass inquiries made in the past 30 days. As long as you find a loan within 30 days, this lets you rate-shop without any effect on your FICO Scores.
Remember that while FICO Scores only consider inquiries from the last 12 months, inquiries may remain on your credit report for up to two years.
Shopping for the best rate on a car loan has the same impact as a single inquiry
For loan types where rate-shopping is common, like mortgages, auto loans, and student loans, FICO® Scores will consider and group inquiries for a loan type that fall in a typical shopping period as just one inquiry. For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14-day span. For FICO Scores calculated from the newer versions of the scoring formula, this shopping period is any 45-day span.
Your late payment from 7 years ago drops off and your score stays the same
Older negative items (like late payments) have less impact on your FICO® Score. Late payments will be removed from your credit reports after 7 years, at which point they have no impact on your FICO Score. Depending on other data and changes in your credit file, the impact of a negative item in its final year may be so slight that you are not able to notice the effect when it "falls off" the credit report.