Does Looking At Your Credit Score Lower It?

Understanding the Mystery of Credit Score Checks

Many people are hesitant to check their credit score, fearing that doing so will negatively impact it. This fear often stems from a misunderstanding of how credit scoring works and the different types of credit inquiries. The good news is that routinely checking your own credit score will *not* lower it. Let's delve into the details and clarify the confusion.

The Two Types of Credit Inquiries: Hard vs. Soft

To understand why checking your own credit score doesn't hurt it, you need to know the difference between hard and soft credit inquiries.

Hard Inquiries

Hard inquiries, also known as hard pulls, occur when a lender checks your credit report to make a lending decision. This usually happens when you apply for a credit card, loan (mortgage, auto loan, personal loan), or other form of credit. Hard inquiries do have a small, temporary impact on your credit score.

Here's why hard inquiries matter:

• Sign of Seeking Credit: Lenders see multiple hard inquiries within a short period as a potential sign that you're actively seeking credit and might be a higher risk borrower.
• Minor Score Impact: Each hard inquiry can lower your credit score by a few points. The exact impact depends on your credit history and the scoring model used.
• Temporary Effect: The impact of a hard inquiry usually fades over time. Most inquiries only affect your score for about a year, and they typically disappear from your credit report after two years.

Soft Inquiries

Soft inquiries, also known as soft pulls, occur when you check your own credit report, or when a company checks your credit for pre-approved offers, employment screening (with your permission), or tenant screening. Soft inquiries have absolutely no impact on your credit score.

Here's why soft inquiries are harmless:

• Not Related to Credit Applications: Soft inquiries are not linked to specific credit applications, so they don't indicate to lenders that you're actively seeking credit.
• No Score Impact: Credit scoring models don't consider soft inquiries when calculating your credit score.
• Invisible to Lenders: Other lenders cannot see soft inquiries on your credit report.

Checking Your Own Credit Score: A Soft Inquiry

When you use services like Credit Karma, Credit Sesame, or even your bank's credit score monitoring tool, you are initiating a soft inquiry. These services provide you with your credit score and often your credit report without impacting your creditworthiness. This is because these checks are for informational purposes only, not for making lending decisions.

Why You Should Regularly Check Your Credit Score

Despite the initial fear of lowering your score, regularly checking your credit score and credit report is crucial for several reasons:

• Detect Errors and Fraud: Monitoring your credit allows you to identify any inaccuracies or fraudulent activity, such as accounts you didn't open or incorrect payment information.
• Understand Your Credit Health: Knowing your credit score provides a snapshot of your creditworthiness, helping you understand how lenders perceive you.
• Track Your Progress: If you're working on improving your credit score, regular monitoring allows you to track your progress and see the results of your efforts.
• Negotiate Better Rates: A good credit score can help you qualify for lower interest rates on loans and credit cards, saving you money in the long run.
• Plan for Future Financial Goals: Whether you're planning to buy a house, a car, or start a business, knowing your credit score allows you to plan and prepare accordingly.

How to Monitor Your Credit Score Safely

Here are some tips for monitoring your credit score without hurting it:

• Use Free Credit Monitoring Services: Many credit card companies and banks offer free credit score monitoring as a benefit to their customers. Take advantage of these services.
• AnnualCreditReport.com: Under federal law, you're entitled to one free credit report each year from each of the three major credit bureaus (Equifax, Experian, and TransUnion). While this doesn't provide your score, it's essential for checking for errors.
• Be Mindful of Hard Inquiries: Avoid applying for multiple credit cards or loans within a short period, as this can lead to multiple hard inquiries that can lower your score. Do your research and compare offers before applying.
• Stagger Your Credit Report Checks: Instead of checking all three credit reports at once, stagger them throughout the year (check Equifax in January, Experian in May, and TransUnion in September). This allows you to monitor your credit more frequently without overwhelming yourself.

Factors That Affect Your Credit Score

Understanding the factors that influence your credit score is just as important as understanding the difference between hard and soft inquiries. Here's a breakdown of the key components:

• 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 compared to your available credit. Keeping your credit utilization ratio (the amount of credit you're using divided by your total available credit) low is essential. Ideally, aim for under 30%.
• Length of Credit History (15%): A longer credit history generally indicates a more responsible borrower. The longer you've had credit accounts open and in good standing, the better it is for your score.
• Credit Mix (10%): Having a mix of different types of credit accounts (e.g., credit cards, installment loans) can demonstrate your ability to manage various types of debt responsibly.
• New Credit (10%): As discussed earlier, opening multiple new credit accounts in a short period can raise red flags for lenders and potentially lower your score.

Improving Your Credit Score: A Step-by-Step Guide

If you're not happy with your current credit score, don't despair! There are several steps you can take to improve it over time:

1. Pay Bills on Time: Set up reminders or automatic payments to ensure you never miss a payment deadline.
2. Reduce Credit Card Balances: Aim to pay down your credit card balances as much as possible. Focus on paying off high-interest debts first.
3. Keep Credit Utilization Low: Try to keep your credit utilization ratio below 30% on each of your credit cards.
4. Avoid Opening Too Many New Accounts: Only apply for new credit when you truly need it.
5. Review Your Credit Reports Regularly: Check your credit reports for errors and dispute any inaccuracies you find.
6. 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 history.
7. Consider a Secured Credit Card: If you have difficulty getting approved for a traditional credit card, a secured credit card can be a good option. You'll need to provide a security deposit, which usually serves as your credit limit.

Understanding Credit Scoring Models: FICO vs. VantageScore

It's important to note that there are different credit scoring models used by lenders, primarily FICO and VantageScore. Both models evaluate your creditworthiness, but they use slightly different criteria and weighting. Therefore, your score may vary depending on the model used.

• FICO Score: The FICO score is the most widely used credit scoring model by lenders. It ranges from 300 to 850.
• VantageScore: VantageScore is a newer credit scoring model that was created by the three major credit bureaus. It also ranges from 300 to 850.

While both models consider similar factors, they may weigh them differently. For example, VantageScore tends to give more weight to recent credit activity, while FICO gives more weight to payment history.

Knowing which scoring model is being used can help you better understand your credit score and how it's being evaluated by lenders.

The Importance of a Good Credit Score

Having a good credit score is essential for many aspects of your financial life. It can affect:

• Interest Rates: A higher credit score can help you qualify for lower interest rates on loans and credit cards.
• Loan Approval: Lenders are more likely to approve your loan application if you have a good credit score.
• Credit Card Limits: A higher credit score can help you get approved for credit cards with higher credit limits.
• Insurance Premiums: In some states, insurance companies use credit scores to determine insurance premiums.
• Rental Applications: Landlords often check credit scores when evaluating rental applications.
• Employment Opportunities: Some employers may check credit scores as part of the hiring process (with your permission).

Investing time and effort into building and maintaining a good credit score can significantly improve your financial well-being and open up opportunities that might otherwise be unavailable to you.

What to do if You Find an Error on Your Credit Report

Finding an error on your credit report can be alarming, but it's crucial to take prompt action to correct it. Here's a step-by-step guide:

1. Obtain a Copy of Your Credit Report: You can get a free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) annually at AnnualCreditReport.com. Review it carefully.
2. Identify the Error: Pinpoint the specific error on your credit report. It could be an incorrect account balance, a late payment that didn't happen, an account you don't recognize, or even identity theft.
3. Gather Supporting Documentation: Collect any documents that support your claim that the information is incorrect. This could include bank statements, payment confirmations, or correspondence with the creditor.
4. File a Dispute with the Credit Bureau: You'll need to file a formal dispute with the credit bureau that is reporting the inaccurate information. You can do this online, by mail, or by phone. Each credit bureau has instructions on their website.
5. Provide Clear and Concise Information: In your dispute letter or online form, clearly explain the error and provide copies of your supporting documentation. Be specific and concise.
6. Send the Dispute to the Creditor (Optional): While not always necessary, you can also send a copy of your dispute to the creditor that reported the information to the credit bureau.
7. Wait for a Response: The credit bureau is required to investigate your dispute within 30 days. They will contact the creditor to verify the information.
8. Review the Results: The credit bureau will notify you of the results of their investigation. If they find that the information is incorrect, they will correct it on your credit report.
9. Follow Up if Necessary: If the credit bureau denies your dispute, you have the right to add a statement to your credit report explaining your side of the story. You can also consider contacting the Consumer Financial Protection Bureau (CFPB) for assistance.

It's essential to be proactive about correcting errors on your credit report, as they can negatively impact your credit score and make it more difficult to get approved for loans or credit cards.