Does Checking Your Credit Score Lower It?

In a world where myths about money are around every corner, it’s hard to know what advice is true and what is a not. One of these persistent myths is that checking your credit score will lower it and end up hurting you.

A recent survey found that one in five consumers believe this myth. Believing this can have a big impact on your financial decision-making process. The truth is that this myth is just that, a myth. Checking your own score will not lower it. In fact, knowing your score can be beneficial.

Debunking this myth is an important part of the financial decision-making process. Knowing more about what affects your credit score can be important to the future.

What is a credit score?

The first step in debunking this myth is discovering what a credit score is and where it comes from. Your credit score is a numeric representation of something called a credit report. A credit report is a detailed list that shows your credit history.

Companies use this information to calculate a three digit number. This number is your credit score. Potential creditors use your credit score to determine how much of a financial risk you may be. The lower your score, the more likely it is you may be a risk to them.

The two major models, FICO and VantageScore, both range from 300 to 850. They also both use credit files from TransUnion, Equifax, and Experian. But, each calculates your score in a slightly different way. You cannot choose which model a financial institution will use.

Factors affecting your credit score

As a consumer, you have the ability to influence your own credit score. You can do this by focusing on five major factors that influence your score. These are payment history, amount of debt, types of credit, age of credit accounts, and recent credit inquiries.

Both FICO and VantageScore place more importance on certain factors over others. Your payment history is the most important to your credit score. The age of your accounts is important but matters less.

Your credit score is not affected by certain factors. These include age, race, gender, religion, marital status, nationality, or occupational related information.

Benefits of a high credit score

FICO and VantageScore both consider a score over 670 to be good. But, different companies may be looking for different scores. A typical apartment may be okay with an average score but a high-limit credit card company may want a higher one.

Having a high credit score can lead to many benefits in your financial life. A higher credit score gives you a higher chance of being approved for credit. Many times, you’ll also have access to lower rates, higher limits, and better terms. Over time, these benefits can save you money.

You may also have access to better credit cards. Many credit card companies reserve their best cards for their most creditworthy customers. A higher score may lead to better rewards, lower interest rates, and better offers.

A high credit score can also impact non-lending aspects of life. You may be eligible for lower deposits on apartments and utilities. You could even save money by having lower insurance premiums.

Check your credit score often

Since checking your credit score doesn’t lower it, you should check your score often. If you know your credit score, you at least know where you stand. If you need to improve it, you can start taking steps to make it better. Even if your score is good, you should still check it often.

Your credit score can vary from day to day. But, large changes may suggest a problem. You should check your credit score about once a month. If you plan on applying for credit, you should also check before you apply.

One in five people has an error in their credit report. Changes in your score could help you find reporting errors. A change in your credit score could mean that a mistake occurred. The sooner you notice it, the better.

You could also find out about identity theft that is occurring. Identity thieves sometimes open unauthorized accounts in your name. This could lead to a sudden drop that alerts you to the issue.

Also, knowing your score gives you a leg up when applying for lending. You’ll be able to see if you meet the requirements that lenders are looking for before you apply. That way you won’t apply for lending that you don’t qualify for.

Hard vs soft inquiries

When your credit is accessed, there are two types of inquiries: hard and soft. A hard inquiry (or “pull”) is when someone looks at your full credit history. Usually, this is because a bank or credit card company is making a lending decision. From here, they know what rates and terms to offer.

Soft inquiries (or “pulls”) are like snapshots of your credit history. They do not show your entire credit history. These types of inquiries do not impact your credit score.

Examples of hard and soft credit inquiries

Hard credit inquiries usually happen when you apply for a mortgage, auto loan or student loan. They also occur when applying for personal loans, credit cards, and apartment rentals.

When you check your own credit score, you are doing a soft credit inquiry. Other soft “pulls” include rate quotes and pre-qualified credit card offers. You may also have a soft pull for an insurance quote. If you have a background check for a job, they may also do a soft inquiry.

How inquiries affect your score

Soft credit inquiries do not affect your credit score. You do not lose any points for them. They may appear on the credit report that you see. But, others checking your report will not see them.

Hard inquiries do affect your credit score. For each hard inquiry, you can lose up to five points off of your FICO score. On your VantageScore, you can lose 10-20 points.

Although these may not seem like large amounts, they can add up. Applying for many credit cards or loans can knock a lot of points off of your score in a short time.

Plus, if you have many inquiries in a short period, a creditor may wonder if you are a credit risk. Are you low on cash? Quickly gaining more debt? Will you be able to pay them back?

Hard inquiries stay on your credit report for up to two years. But, they only affect your score for about a year. Over the course of the year, their effect decreases.

How to minimize the impact of hard credit inquiries

When applying for a mortgage, auto loan, or student loan, it is common to look around for the best rate. Luckily, multiple hard inquiries for these loans can be counted as one inquiry. You have a rate shopping period of 14-45 days and must meet certain requirements.

This rate shopping exception does not count for credit card applications. Each credit card application results in a separate hard inquiry. Before applying, you should check your score to make sure that you have a good chance of being approved.

How to dispute hard credit inquiries

The Fair Credit Reporting Act requires that only those with a valid need do hard inquiries. This could be creditors, insurers, employers, landlords, or other businesses you allow.

If you find hard credit inquiries that are not valid, you can dispute them. Contact the credit bureaus (Equifax, TransUnion, and Experian). If you need more help, the Consumer Financial Protection Bureau (CFPB) can be of aid.

How to check your credit score and report

There are many companies that allow you to check your credit score online, for free. Be sure to choose a reputable company for this. Many credit card companies provide your score for free. Check it often for any changes.

You can also check your credit report. You can receive a free, complete report from the three major credit bureaus every twelve months. Visit www.annualcreditreport.com for your reports.

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