The majority of consumers are puzzled on how monitoring their credit score could lead to a decline in the figures they find. Anyway, one is merely reviewing the credit information, not applying for credit or any credit line, for that matter. But there are certain reasons that make it possible to experience a slight drop in your score for a short time after you check it.
Hard Inquiries
Whenever you apply to see your credit score or credit report, the credit bureau used will make what is known as a ‘hard search’ on your credit. This type of inquiry occurs when an organisation pulls your credit report in regard to your application for credit such as a credit card, an auto loan or a mortgage. These types of inquiries can reduce your credit score a few points and are usually found on credit reports within two weeks.
Therefore, any time you run a credit report, one of these ‘hard inquiries’ will show up in your credit profile. Even if it is merely you checking your own score, credit bureaus consider this a request for new credit. Several hard inquiries within a short time frame may give the impression that one is rate shopping for, or opening credit accounts, thus making them have a wrong perception about you.
The effect of a single hard inquiry is relatively small, as it would only reduce a score by a few points. However, the more questions accrued within the next few months, the more it deteriorates the credit. For instance, if you fill an application for an auto loan, a mortgage, and several credit cards within a short timeframe, then your scores will plunge more.
A lower Average Age of Accounts indicates that accounts are made and used in a shorter amount of time.
Your credit score also depends on the length of credit history. As a rule, the longer the history of the company, the better, although this does not always have to be the case. So, when you check your credit, it becomes part of your credit report and contributes to the average age of your accounts. It can lower your average account age, which will lower your score by a bit in turn, if you use it.
For those with very little history and fairly recently opened credit accounts (as in teenagers, first time credit users), this dip may be a little more pronounced but should still be very small nonetheless. Those who have long standing accounts will not observe anything related to this aspect when checking their score.
The Upside – Checking Can Also Help Your Score
A credit check may reduce your score by a few points but at the same time the credit check may help you in the long run. It is recommended that one check their credit report frequently to verify that all of the information is correct and to detect fraudulent activity such as identity theft. This means that challenging errors on your credit can contribute to an increase in your score once the errors are rectified.
This way, you can monitor how your score and credit history look from the lenders’ point of view when applying for financing. This way you will get a clear picture of your chances of being granted credit cards and loans instead of being shocked by denial. It also enables you to identify problems early enough before they push your score down rather than to have the score drop when you least expect it.
And proving to lenders that you routinely monitor your credit is another form of responsibility. Hence, once the brief initial downward shift is corrected within a month or two, being an informed credit consumer will go a long way in achieving and sustaining those higher scores. The loss that occurs during routine checks is short-term while the knowledge you gain more than compensates for this in the long-run.
How to Check without Compromising
So what can you do if you want to monitor your credit without all the investigation types affecting your score? Here are some ways to review your credit report or score while minimizing damage:Here are some ways to review your credit report or score while minimizing damage:
Space Out Requests: Do not check your credit more than once in three months if you want to reduce the number of hard inquiries that appear on your credit report. However, if there are too many grouped together, it can overemphasize the scoring drops.
Check One Report at a Time: There are three main credit reporting agencies – Experian, TransUnion, and Equifax. Instead of checking your score and all three reports at a time, check only one complete report after every four months. This still allows you to monitor activity while cutting hard inquiries.
Use Free Services Cautiously: Credit Karma is one of such services which offers free credit scores and credit reports to its users. However, the signing up still allow the hard inquiries. Instead of being over-occupied with checking, be conscious of each check requested. Furthermore, these scores are approximations, not the full FICO scores which many lenders use.
Check Report Without the Score: You should go to AnnualCreditReport. com for your free credit reports without score. For this reason, it does not call for hard inquiries. So review each of the three reports annually for activity. That I just won’t have the opportunity to look at the numbers.
Use Soft-Pull Reporting Tools: Some banks, credit unions, and personal finance applications contain credit monitoring features that do a soft inquiry on your credit report. Soft inquiries in turn do not make any difference on your own credit scores. Therefore, using tools such as these helps you monitor changes and no calculation drops.
The Bottom Line
Checking your own credit score does slightly affect the figure itself. A few points lower now and then is a very small sacrifice for the constant monitoring of one’s credit profile before the need for large loans. Do not habitually retrieve your full reports and scores simultaneously. However, it is recommended that one takes time to review his or her key credit information now and then.
