Credit ratings are often thought of as static numbers that only change when you have a credit event, such as a request for credit or a payment overdue of more than 30 days.
In fact, credit scores can change frequently, especially for people who are heavily involved in credit. The reason why? Credit scores are calculated from information in your credit file, also known as credit report, which is constantly evolving.
Lenders, credit card companies and the banks you do business with update your Account Status by sending information to Experian and the other two credit bureaus, Equifax and TransUnion, about every 30 days.
Your account status is a record of how you manage your account, such as whether you paid your account on time and how much you paid. Your account status may also reflect negative activity, such as whether you’ve paid late – and how late (30, 60, or more than 90 days late).
Whenever your credit report changes with new monthly account status updates, your credit score can also change, up or down, depending on the data.
Let’s say you have a credit card with a credit limit of $ 2,500 and you buy a big screen TV for $ 2,000. Your credit card company will report your account balance as $ 2,000, so for a while your account will be “heavily used,” meaning you are spending near your credit limit.
The ratio of your balance to your credit limit is called credit utilization rate, or the credit utilization rate, and it is ideal for most credit scores to keep it at 30% or less.
In this example, the usage is higher than that (80%), which could lower your credit scores.
The good news is that as soon as the payments on this account decrease the outstanding balance, so that the account is not used heavily, your credit scores will most likely improve.
This article first appeared on Experian.com and was syndicated by MediaFeed.org.