Why Did My Credit Score Go Up?

Increasing your credit score can be a welcome surprise, but you may be wondering why. Your credit score can increase for several reasons. They all have to do with changes in the information in your credit report. Common reasons for increasing your credit score are a reduction in credit card debt. The elimination of old negative notes from your credit report, and timely payments that are added to your report.

The situations that increase your score correspond to the factors that determine your credit score. For example, removing late or missed payments from your credit report after a certain period of time can lead to score growth because the payment history is the most important factor in your score.

Read on to learn more about the reasons why your credit score may have risen.

·       Your Credit Utilization Ratio Decreased

Your credit utilization rate is the amount of the revolving credit currently in use compared to your total credit limit. Scoring models calculate credit utilization based on your individual credit card account and your total utilization across all credit card accounts.

When you pay off a credit card balance, your utilization drops to zero – and so does your overall utilization rate. This generally has a positive effect on your score. Although proving that you can manage credit cards regularly means that a low total ratio is better than zero. Since account information is updated after the end of a billing cycle with credit agencies. You may not notice a score change until 30 to 45 days after you have reduced your credit utilization.

If you keep your credit utilization below 30% of your available credit, you can improve your score, and the lower the better. Repaying your balances is the easiest way to reduce your credit utilization. But you can also require a credit card issuer to increase your credit limit. An increased limit can help you reduce your utilization rate, even if you maintain the same credit utilization rate. However, you should resist the temptation to use this increased limit to increase your debt, which could leave your utilization rate worse off than before and lead to higher interest charges. After you have applied for an increase in the credit limit, you could experience a brief drop in your score if the issuer had to make a hard request to verify your credit report as part of its decision-making process.

·       Negative Information Dropped From Credit Report

Negative features in your credit report include late payment, bankruptcy, debt collection, foreclosure, and student loan default. Each of these features remains in your report for seven years, except Chapter 7 bankruptcy, which is on your credit report for 10 years.

Even if you end up paying off an account in full. Late payments on that account will remain on your credit report until those seven years have expired. If a negative note eventually comes out of your report, your credit score will likely increase. It is not possible to pay a company to remove a negative point prematurely from your report. Despite the promises that some services make.

However, the federal government’s rehabilitation of a defaulted student loan removes the standard notation from your report. Previous late payments remain in place for seven years.

·       Existing Debts Paid Off

Repayment of your revolving credit, which is a type of debt that includes credit cards and other lines of credit, could potentially lead to a rapid improvement in your credit score.

On the other hand, repaying installment debt, such as personal loans, student loans, and mortgages, will generally not affect your score as positively, mainly because installment accounts are not included in your credit utilization. Another reason is that repaid accounts are listed as closed. And closed accounts are not weighted as heavily in score calculations as open accounts. Debt repayments in general are a smart move. But reducing credit balances does not necessarily lead to an immediate credit increase.

The news is also mixed when it comes to the repayment or settlement of accounts in debt collection agencies. Which means that they are due and have been sold to a debt collection agency. Newer credit scoring models do not take paid debt collection accounts into account in your score. Meaning that a certain negative mark does not negatively affect it.

However, older scoring models, including those used for mortgage loans, still take into account the depreciation of your collection account in your credit score, which means that the repayment or settlement does not increase the account.

·       You Have Diversified Your Credit Mix

A less significant but still important element in your credit score is the credit mix. This refers to the types of credit accounts you currently hold, which are generally divided into two types: installment credit and revolving credit.

Diversifying your credit mix is often the result of the normal course of borrowing and adding accounts to your credit portfolio. It is not a wise move to take on more debt accounts to increase your credit mix. The effect you will see on your credit is likely to be very small. And the extra debt can affect your personal finances.

·       A Hard Inquiry Fell Off Your Credit Report

When you apply for a loan, credit line, or credit card, a lender or credit card issuer will review your credit report to check your payment history, other debt obligations, and your experience with credit.

This is called a hard inquiry, and a record of the credit check will find its way into your credit report. This is done so that credit scoring models. As well as other lenders and credit card issuers can see how many times you have applied for credit in the past. If you have many applications for a variety of credit types, you could be at greater credit risk. Credit scoring models, however, recognize the importance of installment purchases for loans such as mortgages and auto loans and count similar loan applications as one inquiry if they are submitted over a period of a few weeks.

·       A Hard Inquiry Fell Off Your Credit Report

When you apply for a loan, credit line, or credit card. A lender or credit card issuer will review your credit report to check your payment history. Other debt obligations, and your credit experience.

This is called a hard inquiry, and a record of the credit check finds its way into your credit report. This is done so that credit scoring models, as well as other lenders and credit card issuers. Can see how many times you have applied for loans in the past. If you have many applications for a variety of credit types, you may be exposed to greater credit risk. However, credit scoring models recognize the importance of installment purchases for loans such as mortgages and auto loans and count similar loan applications as an inquiry if they are submitted over a period of a few weeks.

Hard credit inquiries remain on your credit report for up to two years. In most cases, they only have a negative impact on your credit for one year or less. The impact of a single inquiry on your credit is small, if noticed at all. And can be clouded by positive payment history and other responsible credit behavior. If your score has increased recently, it may be because an old hard inquiry no longer feeds into your score.

·       Manage Your Bills and Credits

Improvements in your score can also be the result of responsible credit management. Such as paying your bills on time and repaying your credit card balance in full each month. These 2 habits alone will make sure that payment history and credit utilization. The two most important scoring factors, always contribute positively to your score.

·       Keep Up With Positive Credit Habits

It is also a driving force to keep your score strong and even improve it. As always, paying bills on time should be your top priority. So, you should set up automatic payments to your loans and credit cards each month from a bank account.

Other positive credit habits include limiting new credit applications to what you need and periodically reviewing your credit report and score. So you can immediately notice when your score drops or unusual activity appears in your report that could be a sign of fraud or the result of a creditor incorrectly reporting your account balance. Identifying and correcting errors will help ensure that they do not cause undue negative effects on your credit.

·       Using Credit Growth As Motivation

Be proud of an increased credit score, because that means that you can manage the complexity of your credit file solidly. Not only is this good news today, but it provides a solid opportunity to learn more about how your credit score is calculated – and to put into practice habits that can lead to continued score growth in the future.