Having a good credit score is essential for many aspects of life.

Most lenders rely on it to determine your creditworthiness, which can impact whether you get approved for a loan as well as the interest rates you get on credit cards and other financial products. From time to time, though, you may experience fluctuations in your score, leading to confusion and frustration. Knowing what factors can influence it can help you better manage it and protect your financial well-being.

How your score is calculated

While there are several scoring models out there for calculating credit scores, the one from the analytics company FICO is the most recognized. The three main nationwide credit bureaus—TransUnion, Equifax, and Experian—all use its formulas to create their credit scores, and 90 percent of lenders use these scores to determine loan eligibility. Each person’s credit score is based on five weighted categories: payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), new credit (10 percent), and credit mix (10 percent). Scores can range from 300 to 850, with 670 to 739 generally considered good, 740 to 799 very good, and 800 and above excellent.

Minimize score fluctuations

At any given time, a creditor may send updates to the credit bureaus, which could initiate a score change without you even realizing it. However, if you discover that you’ve experienced a sharp decline, there are several reasons why it may have happened.

Credit cards
Applying for a new credit card or making multiple credit inquiries can cause your credit score to decrease temporarily, as it suggests you are looking to take on more debt. Unfortunately, closing a credit card, especially if it has an outstanding balance or available credit, can also affect your score because the card’s limit is no longer being factored into your credit utilization ratio.

Credit utilization
Your credit utilization ratio—the percentage of available credit as determined by how much you’ve spent against your limits—directly affects your credit score. The lower this ratio, the more positive that impact will be. Don’t be alarmed if your credit score takes a temporary hit after making a large purchase. Because credit card companies typically report the balance at the end of the billing cycle, your payment may not show up until the following credit card statement.

Hard inquires
A lender or creditor may check your score when you apply for credit, such as an auto or home loan. This is called a hard inquiry and may affect your credit score temporarily. Fortunately, several inquiries made within fourteen to forty-five days are usually only counted as one, limiting the hit your score may take.

Inaccurate information
There may be errors, unethical activity, false reporting, or even missing information on your credit report that can cause a sudden dip in your credit score. If you notice any suspicious activity, be sure to report it to all three credit bureaus as quickly as possible.

Late or missed payments
A missed payment or one made more than thirty days late can appear on the following credit reporting cycle. And because 35 percent of your credit score is based on your payment history, you’ll likely see a drop in your score until you resolve the issue.

Unpaid debt
Your creditor may send your unpaid bill to a collection agency to try to collect payment. They may also then report it to one or all three nationwide credit bureaus. Depending on the credit scoring models used, though, collections under $100 or unpaid medical bills may be ignored or treated differently than other forms of consumer debt.

Lowered credit limit
Your score might also dip if your credit card issuer lowers your credit limit due to a high balance on one or more of your credit cards or if your credit utilization ratio has surpassed 35 percent. To combat this, strive to pay down your balance as quickly as possible.

It’s not unusual for your credit score to fluctuate, but it’s still important to review it from time to time so you can stay on top of it. Get your free annual credit report from the big three bureaus, and consider signing up for services like Credit Karma or Credit Sesame, which offer free credit score monitoring. And be sure to investigate immediately if you do see a significant drop in your score.