Credit scores are three-digit numbers that can change your life. Quite literally! And when it suddenly drops without you doing anything, things can take a drastic turn (against your favor).

Why?

Because you just can’t seem to think of the reasons why your credit score starts fluctuating when you are using the best secured credit cards in Canada to manage your money and improve your credit profile.

Yes, it can happen!

You could be using top-tier services, and your credit report still might be full of errors, or your credit score might still be declining.  So, what are the reasons? Why does your credit score fluctuate? Here’s why.

Credit Card Cancellation

If your credit score drops, there must be a reason for it. Not always do you have to panic and make calls to your card company. Often, there’s a straightforward answer to it. It’s only you who’s not considering it.

• Did you recently cancel a credit card?
• Does your company terminate your card services?
• Was your card stolen, and did you have to freeze the bank account immediately?

If yes, that’s the reason your credit score fluctuates. 

Credit Card Opening

Followed by the credit card cancellation, you might notice a dip in your credit score when you open a new credit card. Especially if you registered for new cards back to back in a short time, your credit card would be filled with multiple hard inquiries. 

• When you apply for a new credit card, a hard inquiry is initiated that might remain on your report for a year or two.
• The one application will not affect your score much.
• However, if you apply for four or more cards in a four or five months period, your credit score might drop by considerable points.

The reason why applying for multiple credit cards at once isn’t the best idea for your credit score. 

Large Credit Card Purchase 

Of course, you bought the card to make big purchases as you want to enjoy the convenience of immediate money it offers. However, when you make a large purchase on your credit card, there’s a high chance it will affect your lower utilization. 

So, when your credit utilization ratio goes high, the score is eventually reduced.

Now you may say, but you cleared the balance in full. Still, you don’t know if your unpaid balance was reported to the bureaus before you paid it all off. 

Decreased Credit Limit

It’s a good thing that you have a low credit utilization rate but your lower credit limit can take all the good from it! A decrease credit limit is most likely to increase your CUR which eventually hurts credit score causing it to fluctuate often.

• For instance, your credit limit is $3000 and you use only a portion of it to keep the utilization under 20%.
• But, if your credit limit was reduced to $2000 and you didn’t update your budget or spending habits, the utilization will automatically rise to 30% or more.

Even if your credit utilization is changed by a percentage due to your reduced credit limit, your credit score is going to fluctuate. 

Credit Report Errors

An error in your credit report might be the reason why your credit score constantly changes without you knowing. Why? Because you never focused on the monthly credit statements or care to check the report yearly.

• There might be a fraudulent activity, 
• A credit theft attack, 
• A clerical or technical error,

And any credit mistake or typo in your credit report that could be the reason for your credit score fluctuation. That’s why financial experts advise you to always check your credit report first if you feel there’s something wrong with your score.

Debt-Free Credit Profile

Yes, it’s good news that finally after all your hard work and continuous efforts, you can now enjoy a debt-free life. However, things work slowly yet gradually in the financial world. 

The main reason is the credit mix!

When you are struggling to clear bill and loan payments, your credit report is full of revolving credit, auto loans, insurance, etc. So, when you finally become debt-free, all the credit mix vanishes from your credit report. That can be a reason for your credit score fluctuation. 

Should You Be Worried If Your Credit Score Fluctuates?

Well the answer is typical: It depends!

If you know you have been working towards improving and establishing your credit score by practicing good financial habits, there’s no reason to fret about it.

However, if you know you’re going to do something that will initiate a hard inquiry or make your report full of negative marks, you should rethink your decisions. 

• A constant credit fluctuation will alert the lenders that something is wrong with your credit account. 
• Of course, they’ll take your credit as a risk-potential score that won’t be beneficial for their company.
• Moreover, the banks will also be alert that you don’t know how to effectively handle money management.
• That eventually reduces your chances of getting additional finances. 

And that’s the last thing you need for your financial future.

Bottom Line

Credit score is like a result of your financial tests you have been facing all your life. Moreover, having a good credit in Canada is important for so many reasons:

• Affordable mortgage,
• Low interest rates, 
• Better insurance,
• Flexible loan terms, etc.

In fact, it won’t be wrong to say that a good score is your permit to live your life in convenience and ease.

However, the situation changes as your credit starts dropping. In other words, when your credit score is constantly fluctuating, it doesn’t give a good signal to the lenders, investors, and banks. 

Nevertheless, knowing the reasons for the credit score changes is essential to find the problem and fix it at its core. Sometimes, the reasons are usually simple and right at the front but you seem to not understand the point. Agree, right? Of course, you do!

So, here’s a helpful guide for you!