Thanks to the internet, it’s not hard to keep track of your credit score. Whether it’s through your bank account, credit card issuer or a free online credit monitoring program, if you’re financially minded, chances are good that someone’s keeping you up to date on those three important digits.
And they are important, to be sure. Your creditworthiness affects your ability to achieve all sorts of major financial goals, from becoming a homeowner to signing an auto loan. Better scores mean better terms (in general), and bad scores could mean higher interest rates — or out-and-out disapproval.
But that doesn’t mean you’ve got to go into full-on freak-out mode every time you get an email from Credit Karma.
Here’s why those itty-bitty credit score changes you see from month to month don’t actually matter.
Why Small Credit Score Changes Aren’t a Big Deal
Let’s start by dispelling the myth of the single, shining credit score that never fluctuates or falters.
For one thing, you don’t have just one credit score. In fact, you’ve got several, and they’re each calculated using several different models and metrics. The most commonly used, and the ones you’re most likely familiar with, are your FICO scores: three-digit numbers that range from 300 (very poor) to 850 (exceptional).
FICO scores alone are calculated by three different bureaus — Equifax, Experian and TransUnion — each of which may have varying amounts of access to your personal information at different times. The bureaus are constantly updating your files as they receive input, causing microshifts in your score on a short-term basis.
More importantly, each credit rating category covers a range of scores. For instance, “good” credit can fall anywhere between 670 and 739, per Experian. So unless you’re right on the cusp, a three-point blip probably isn’t going to affect your credit rating one way or another.
And depending on which credit monitoring system you’re using, you may not even be able to see your actual score in the first place. Instead, you’ll just be alerted to major changes, like payoffs or new accounts being opened — which, again, not all three bureaus will notice or add to your file at the exact same time.
Along with the simple reality of delayed bureau reporting, other normal credit activities could also cause your score to shift, like hard inquiries (which occur when you apply for credit), balance increases or opening a new account. These aren’t necessarily bad things, but they flag a change in credit-related activity, which can temporarily ding your score.
It works the other way, too. For instance, maybe you regularly use a cash back rewards credit card for day-to-day transactions, and you then pay it off in full every month. You might see a quick credit bump come pay-off day, even though it doesn’t really reflect a change in your behavior.
Either way, fixating on these tiny credit score changes is both stressful and unnecessary. It’s kind of like body weight — specifically the painstaking (and pointless) ritual of the daily weigh-in. When you’re focused on the scale, your day might be made or broken by a one-pound shift… when in reality, such a small change has little impact on your overall health or appearance.
With both pounds and points, it’s big swings you want to watch out for — and which may indicate a larger underlying issue that needs your attention. Monitoring your credit can give you a heads-up on unauthorized activity or the long-term effect of carrying high balances, paying your bills late and more.
When *Should* You Get Concerned About Credit Score Changes?
It might be frustrating to learn that your credit score isn’t static. Trust me when I say I get it: For
control freaks Type A personalities like me, even a little bit of unpredictability can be unsettling.
But the good news is, your credit score isn’t actually the be-all, end-all of your financial fitness. Most lenders take your holistic credit history into account, not just those three little digits. And if you’re not in the market for a new loan or credit card, your score realistically doesn’t have much effect on your life.
Of course, a fair or poor credit score can lead to significant headaches when you do decide it’s time to tackle some new financial goals. And if your credit monitoring service alerts you to a change you don’t recognize, investigate immediately: Fraudulent or unauthorized activity could spiral out of your control very quickly.
If your score’s not quite where you want it to be, there are solid steps you can take to inch it upward. Even in the case of identity theft or bankruptcy, you can repair your credit given enough time, perseverance and patience.
And if you’re already getting those sometimes-frustrating emails we were talking about, chances are you’re on the right path. Just try not to sweat the small stuff along the way.
Jamie Cattanach’s work has been featured at Fodor’s, Yahoo, SELF, The Huffington Post, The Motley Fool and other outlets. Learn more at www.jamiecattanach.com.