Will Checking Credit Score Lower It?

Your credit score is a crucial component of your financial health, influencing everything from loan approvals to interest rates. Understandably, many people are hesitant to check their credit score, fearing that the act of checking itself might negatively impact it. This fear stems from a common misconception about how credit scores are calculated and how inquiries are handled. This article aims to debunk this myth and provide a clear understanding of the difference between hard and soft credit inquiries, helping you monitor your credit without worry.

Understanding Credit Scores and Credit Reports

Before diving into the specifics of credit inquiries, it's essential to understand the basics of credit scores and credit reports.

A credit score is a three-digit number that summarizes your creditworthiness based on your credit history. The most widely used credit scoring models are FICO and VantageScore. These models analyze various factors in your credit report to assess your risk as a borrower.

A credit report is a detailed record of your credit history, including your payment history, outstanding debts, credit utilization, and any public records like bankruptcies. Credit reports are maintained by three major credit bureaus: Equifax, Experian, and TransUnion.

Factors Affecting Your Credit Score

Understanding the factors that contribute to your credit score is crucial for managing and improving it. Here's a breakdown of the key factors, according to FICO:

• Payment History (35%): This is the most important factor. Paying your bills on time, every time, is crucial. Late payments, even by a few days, can negatively impact your score.
• Amounts Owed (30%): This refers to the amount of debt you owe relative to your credit limits. Keeping your credit utilization (the percentage of your available credit that you're using) low is essential. Aim to keep it below 30%.
• Length of Credit History (15%): A longer credit history generally results in a higher score, as it provides more data for lenders to assess your creditworthiness.
• Credit Mix (10%): Having a mix of different types of credit accounts (e.g., credit cards, installment loans, mortgages) can be beneficial, showing that you can manage different types of credit responsibly.
• New Credit (10%): Opening too many new credit accounts in a short period can lower your score, as it can indicate increased risk.

Hard Inquiries vs. Soft Inquiries: The Key Difference

The crucial distinction lies in the type of credit inquiry. There are two main types: hard inquiries and soft inquiries.

Hard Inquiries (or Hard Pulls)

A hard inquiry occurs when a lender checks your credit report to make a lending decision. This typically happens when you apply for a new credit card, a loan (e.g., auto loan, mortgage, personal loan), or a line of credit. Hard inquiries are visible on your credit report and can potentially lower your credit score, although the impact is usually minimal and temporary.

The reason hard inquiries can slightly lower your score is that they indicate you're seeking new credit. A large number of hard inquiries in a short period might suggest to lenders that you're experiencing financial difficulties or are taking on too much debt. The impact of a hard inquiry usually fades within a few months, and the inquiry typically disappears from your credit report after two years.

Examples of Hard Inquiries:

• Applying for a credit card
• Applying for a mortgage
• Applying for an auto loan
• Applying for a personal loan

Soft Inquiries (or Soft Pulls)

A soft inquiry occurs when you check your own credit report or when a company checks your credit for pre-approval offers or employment screening (with your consent). Soft inquiries are not visible to lenders and do not affect your credit score. They are simply used for informational purposes or to pre-screen you for potential offers.

Examples of Soft Inquiries:

• Checking your own credit score through a credit monitoring service
• Checking your credit report through AnnualCreditReport.com
• Credit card companies sending you pre-approved offers
• Employers checking your credit report (with your consent)

The Myth Debunked: Checking Your Own Credit Score Doesn't Hurt It

The central point of this article is that checking your own credit score through a reputable source results in a soft inquiry. Therefore, it does not negatively impact your credit score. You can check your credit score as often as you like without worrying about lowering it.

This is a crucial distinction to understand. Many people avoid checking their credit scores out of fear, which can prevent them from identifying potential errors or fraudulent activity on their credit reports. Regularly monitoring your credit is a proactive step towards maintaining good financial health.

How to Check Your Credit Score and Credit Report

There are several ways to check your credit score and credit report. Here are some of the most common methods:

Free Annual Credit Reports

You are entitled to a free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once every 12 months. You can access these reports through AnnualCreditReport.com. This is the only website authorized by the federal government to provide free credit reports.

While these reports don't include your credit score, they provide a detailed overview of your credit history, allowing you to identify any errors or inaccuracies that could be negatively impacting your score.

Credit Monitoring Services

Many credit monitoring services offer free or paid access to your credit score and credit reports. These services typically provide regular updates and alerts if there are any changes to your credit report, such as new accounts opened in your name or changes to your credit score.

Some popular credit monitoring services include:

• Credit Karma (free)
• Credit Sesame (free)
• Experian (offers a free basic plan and paid premium plans)
• Equifax (offers a free basic plan and paid premium plans)
• TransUnion (offers a free basic plan and paid premium plans)

Credit Card Statements

Many credit card companies now provide your credit score on your monthly statements or through their online portals. This is a convenient way to keep track of your credit score regularly.

Lenders and Financial Institutions

Some lenders and financial institutions may provide your credit score as a service to their customers. Check with your bank or credit union to see if they offer this option.

Why Monitoring Your Credit Is Important

Regularly monitoring your credit score and credit report is essential for several reasons:

• Identify Errors and Inaccuracies: Credit reports can contain errors or inaccuracies that can negatively impact your credit score. By regularly checking your reports, you can identify and dispute any incorrect information.
• Detect Fraud and Identity Theft: Monitoring your credit can help you detect fraudulent activity, such as someone opening accounts in your name without your knowledge.
• Track Your Progress: Monitoring your credit score allows you to track your progress as you work to improve your credit.
• Be Prepared for Major Purchases: Knowing your credit score can help you prepare for major purchases, such as a home or car, by giving you an idea of the interest rates you're likely to qualify for.

Tips for Improving Your Credit Score

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

• Pay Your Bills on Time: This is the most important factor. Set up automatic payments to ensure you never miss a due date.
• Keep Credit Utilization Low: Aim to keep your credit utilization below 30%. This means using no more than 30% of your available credit on each credit card.
• Pay Down Debt: Reducing your overall debt will improve your credit utilization and lower your debt-to-income ratio.
• Avoid Opening Too Many New Accounts: Opening too many new credit accounts in a short period can lower your score.
• Check Your Credit Report Regularly and Dispute Errors: Regularly review your credit report for errors and dispute any inaccurate information.
• Become an Authorized User: If you have a friend or family member with a credit card account in good standing, ask if you can become an authorized user. This can help you build credit, but make sure the primary account holder manages the account responsibly.
• Consider a Secured Credit Card: If you have limited or no credit history, a secured credit card can be a good way to build credit.