Why Would Checking Credit Score Lower It?

Your credit score is a crucial part of your financial life. It influences whether you're approved for loans, credit cards, and even rental properties. Understanding how your credit score works and what affects it is vital for maintaining good financial health. One common misconception is that simply checking your credit score will automatically lower it. The truth is more nuanced, involving different types of credit inquiries and their impact on your score.

Understanding Credit Inquiries: Hard vs. Soft

The key to understanding whether checking your credit score will lower it lies in the distinction between hard inquiries and soft inquiries.

Hard Inquiries

A hard inquiry, also known as a "hard pull," occurs when a lender checks your credit report as part of an application for credit. This might happen when you apply for a:

• Credit card
• Mortgage
• Auto loan
• Personal loan

Hard inquiries can potentially lower your credit score, especially if you have several within a short period. Lenders see multiple hard inquiries as a sign that you may be desperately seeking credit or are potentially overextended. However, the impact of a single hard inquiry is usually minimal and temporary, typically causing a score decrease of just a few points. The impact also diminishes over time, usually disappearing from your credit report after two years.

Soft Inquiries

A soft inquiry, or "soft pull," occurs when you check your own credit score or when a lender checks your credit as part of a pre-approval offer. These inquiries do not affect your credit score. Soft inquiries are also generated for employment background checks or when an insurance company reviews your credit for policy purposes.

Here's a breakdown of common situations that trigger soft inquiries:

• Checking your own credit report through annualcreditreport.com or credit monitoring services.
• Pre-approved credit card offers.
• Background checks for employment or tenancy.
• Insurance applications.

The Myth of Checking Your Own Credit Score Lowering It

The fear that checking your credit score will lower it is largely based on a misunderstanding of hard and soft inquiries. When you use a reputable service to check your own credit score, it almost always results in a soft inquiry. This means it won't hurt your credit score at all.

In fact, regularly monitoring your credit score and report is a good practice. It allows you to:

• Identify potential errors or fraudulent activity.
• Track your progress in improving your credit score.
• Understand how your financial behavior affects your credit.

When Do Credit Inquiries Become a Problem?

While a single hard inquiry usually doesn't have a significant impact, multiple hard inquiries within a short period can raise red flags for lenders. This is especially true if you're applying for multiple credit cards or loans at the same time. Here's why:

Shopping for Rates Within a Short Period

Credit scoring models, like FICO and VantageScore, recognize that consumers often shop around for the best interest rates on mortgages, auto loans, or other types of loans. To avoid penalizing consumers for rate shopping, they often treat multiple inquiries for the same type of loan within a specific timeframe as a single inquiry. This timeframe typically ranges from 14 to 45 days, depending on the credit scoring model.

Applying for Too Much Credit Too Quickly

Applying for several credit cards or loans in a short period can signal to lenders that you're struggling financially or are taking on too much debt. This can lower your credit score and make it more difficult to get approved for credit in the future.

Factors Beyond Inquiries That Affect Your Credit Score

It's important to remember that credit inquiries are just one factor that influences your credit score. Other key factors include:

• Payment History (35%): This is the most important factor. Paying your bills on time is crucial for maintaining a good credit score.
• Amounts Owed (30%): This refers to the total amount of debt you owe and your credit utilization ratio (the amount of credit you're using compared to your total available credit). Keeping your credit utilization ratio below 30% is generally recommended.
• Length of Credit History (15%): A longer credit history generally indicates a more responsible borrower.
• Credit Mix (10%): Having a mix of different types of credit (e.g., credit cards, installment loans) can demonstrate your ability to manage different types of debt.
• New Credit (10%): This includes hard inquiries and the opening of new accounts.

How to Improve Your Credit Score

If you're looking to improve your credit score, here are some strategies you can implement:

1. Pay Your Bills on Time: This is the most important thing you can do to improve your credit score. Set up automatic payments to ensure you never miss a due date.
2. Lower Your Credit Utilization Ratio: Keep your credit card balances low compared to your credit limits. Aim to use less than 30% of your available credit on each card.
3. Check Your Credit Report for Errors: Review your credit reports regularly from all three major credit bureaus (Equifax, Experian, and TransUnion) and dispute any errors you find.
4. Don't Open Too Many New Accounts at Once: Avoid applying for multiple credit cards or loans in a short period, as this can lower your credit score.
5. Keep Old Accounts Open: Even if you don't use them, keeping older credit card accounts open (as long as they don't have annual fees) can help increase your overall credit history and available credit.

Choosing Credit Monitoring Services

Many free and paid credit monitoring services are available. When choosing one, consider the following:

• Frequency of Updates: How often is your credit score and report updated?
• Alerts: Does the service provide alerts for changes to your credit report, such as new accounts or inquiries?
• Credit Score and Report Access: Does the service provide access to your credit scores and reports from all three major credit bureaus?
• Cost: Are there monthly fees or hidden costs?

Remember to always verify the legitimacy of the credit monitoring service and ensure it doesn't involve hard inquiries when you check your score through them.