Does Checking Your Fico Credit Score Lower It?

Your credit score is a critical component of your financial health. It's a three-digit number that lenders use to assess your creditworthiness and determine the terms of loans, credit cards, and other financial products. Understanding how your credit score works and what impacts it is crucial for building and maintaining good credit. One common concern many people have is whether checking their own credit score can negatively impact it. Let's delve into the truth and debunk the myth surrounding this frequently asked question.

Understanding Credit Scores and FICO

Before we address the main question, let's briefly define what credit scores and FICO are.

A credit score is a numerical representation of your creditworthiness. It's based on information in your credit report, which is a detailed record of your credit history, including payment history, outstanding debt, length of credit history, credit mix, and new credit. The higher your credit score, the lower the risk you pose to lenders.

FICO (Fair Isaac Corporation) is the most widely used credit scoring model in the United States. Lenders use FICO scores to assess risk and determine whether to approve you for credit, and if so, at what interest rate. Other credit scoring models exist (such as VantageScore), but FICO is the industry standard. Understanding your FICO score is essential for managing your financial future.

The Key Factors Influencing Your FICO Score

Your FICO score is calculated based on several factors, each weighted differently. These factors are:

1. Payment History (35%): This is the most significant factor. Paying your bills on time is crucial for maintaining a good credit score. Late payments, even by a few days, can negatively impact your score.
2. Amounts Owed (30%): This refers to the amount of debt you owe relative to your credit limits. Keeping your credit utilization ratio (the amount of credit you're using compared to your total available credit) low is important. Ideally, aim to keep your credit utilization below 30%.
3. Length of Credit History (15%): A longer credit history generally indicates lower risk. Lenders prefer to see a track record of responsible credit management over time.
4. Credit Mix (10%): Having a variety of credit accounts, such as credit cards, installment loans (like car loans or mortgages), and lines of credit, can positively impact your score.
5. New Credit (10%): Opening multiple new credit accounts in a short period can lower your score. Lenders may perceive this as a sign of financial instability. This also ties into the "hard inquiries" we'll discuss later.

The Truth About Checking Your Credit Score

Now, let's address the core question: Does checking your FICO credit score lower it? The answer is generally no. However, the type of credit check matters significantly.

Soft Inquiries vs. Hard Inquiries

There are two main types of credit inquiries: soft inquiries and hard inquiries. Understanding the difference between them is vital.

• Soft Inquiries (Soft Pulls): These occur when you check your own credit score, when a business checks your credit as part of a background check, or when credit card companies pre-approve you for offers. Soft inquiries do not affect your credit score. They are not visible to lenders when they are assessing your creditworthiness.
• Hard Inquiries (Hard Pulls): These occur when you apply for credit, such as a credit card, loan, or mortgage. Lenders perform hard inquiries to assess your credit risk before approving you for credit. Hard inquiries can slightly lower your credit score, especially if you have multiple hard inquiries in a short period of time.

Think of it this way: Soft inquiries are like browsing a store. You're looking around but not committing to anything. Hard inquiries are like applying for a credit card at that store – you're making a formal request for credit, and the store (the lender) needs to check your credit history to evaluate your application.

Why Hard Inquiries Impact Your Score (And How to Minimize the Impact)

While a single hard inquiry typically has a minimal impact on your credit score (often a few points), multiple hard inquiries within a short timeframe can be more concerning. Here's why:

• Sign of Potential Financial Instability: Multiple applications for credit in a short period can suggest that you are struggling financially and are desperately seeking credit.
• Increased Risk to Lenders: Lenders may perceive you as a higher risk if you are opening multiple new credit accounts, as it increases your overall debt burden.
• Score Recalculation: The scoring models factor in the new inquiry and reassess your overall profile based on the combination of factors.

How to Minimize the Impact of Hard Inquiries

Here are some tips to minimize the impact of hard inquiries on your credit score:

• Avoid Applying for Multiple Credit Cards or Loans Simultaneously: Spread out your applications over time to avoid accumulating too many hard inquiries at once.
• Rate Shop Wisely: When shopping for a mortgage or auto loan, lenders often understand that you'll be comparing rates from multiple lenders. Apply for all loans within a short period (e.g., 14-45 days) so that the credit bureaus will treat them as a single inquiry for scoring purposes. This is called "rate shopping."
• Only Apply for Credit You Need: Avoid applying for credit cards or loans just because you see a good offer. Only apply for credit when you genuinely need it.

The Benefits of Regularly Checking Your Credit Score

Despite the concerns about hard inquiries, regularly checking your credit score is a good practice for several reasons:

• Early Detection of Errors and Fraud: Monitoring your credit report allows you to identify any inaccuracies or fraudulent activity that could be negatively impacting your score.
• Tracking Progress: Checking your credit score regularly allows you to track your progress as you work to improve your credit. You can see how your actions, such as paying down debt or making on-time payments, are affecting your score.
• Negotiating Better Rates: Knowing your credit score can empower you to negotiate better interest rates on loans and credit cards.
• Financial Planning: Understanding your credit standing allows for better financial planning and can help you make informed decisions about large purchases or investments.

Where to Check Your Credit Score for Free

Several resources allow you to check your credit score for free:

• AnnualCreditReport.com: This website allows you to access your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once per year, free of charge. While this site provides your credit *report*, many services now offer free credit *scores* based on that report data.
• Credit Karma and Credit Sesame: These websites offer free credit scores and credit monitoring services. They typically use the VantageScore model, which is different from the FICO score, but it can still provide a good indication of your credit health.
• Discover Credit Scorecard and Chase Credit Journey: If you're a customer of Discover or Chase, you may have access to a free FICO score through their respective platforms.
• Experian: Experian offers a free credit score and credit monitoring service, even if you're not an Experian customer.

Remember to check your credit report from all three major credit bureaus to ensure accuracy and identify any discrepancies.

Conclusion

Checking your own credit score is a responsible financial habit that does not negatively impact your credit. You're performing a soft inquiry, which doesn't affect your score. Hard inquiries, on the other hand, can have a slight impact, so it's important to be mindful of how often you apply for new credit. By understanding the difference between soft and hard inquiries and regularly monitoring your credit report and score, you can proactively manage your credit health and achieve your financial goals.