Why is my credit score going down when I pay on time?

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    Team StellarFi

    Your payment history indeed makes up 35% of your FICO® credit score. However, there are other factors too which impact your score other than paying your bills on time. For instance, credit utilization makes up 30% of your credit score. Meaning that if your credit card balance is high and you have used more than 30% of your credit limit, your credit score may drop even if you make payments on time.

    Another reason your credit score may reduce is if you have a short credit history. This can happen if you are a new credit consumer, you opened a new credit account or closed an older account, which reduces the average age of your credit accounts. The length of your credit history accounts for 15% of your credit score.

    Opening new credit accounts or having multiple hard inquiries can temporarily lower your credit score. Hard inquiries occur when a lender or creditor checks your credit report in response to a credit application. New credit makes up 10% of your FICO score.

    Credit mix, or having a diverse number of credit accounts other than credit cards, helps lenders understand that you have experience with credit and can manage your finances well. However, relying solely on credit cards without other types of credit accounts may not be beneficial for your score. But if you have mortgages, personal, or auto loans, this can boost your score.

    Mistakes or inaccuracies in your credit reports can lead to a lower credit score. It’s crucial to regularly review your credit reports and dispute any incorrect information to ensure the accuracy of your credit history.

    Additionally, scoring models and versions that lenders and credit bureaus use may be different. So while you have a higher FICO score, it is possible that you have a lower VantageScore® and vice-versa.

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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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