Many are skeptical about checking their credit score and are afraid that doing so will lower the number. If you fall under this category you’re not alone, as this is a common misconception. In fact, checking your credit doesn’t lower your score, and it’s actually smart to do it regularly.
When it comes to credit, it’s important to understand that any time your credit is checked, an inquiry is noted on your report. The good news is that checking your own credit is a soft inquiry and will not impact your score. However, if a lender checks your credit, also known as a hard inquiry, that may temporarily lower your score.
Knowing when to check your score and the difference between hard and soft inquiries is essential to making smart credit decisions. Read on to learn more.
Why You Should Check Your Credit Score
Your credit score reveals your creditworthiness, or, in other words, tells a lender how much of a risk they are taking if you are the borrower. With this in mind, the higher your number, the less of a risk you are. This, in turn, makes you more eligible to receive approval for a policy, loan, or service.
Checking your score often can help you know your overall financial health, and steer you to make knowledgeable financial and credit decisions. In doing this, you’ll also be able to understand what types of things affect your score, and learn how to avoid potential drops in your score.
Understanding Credit Checks: Soft vs. Hard Inquiries
There are two types of credit checks that are done to review someone’s credit: soft and hard inquiries. It’s important to understand how both forms of credit checks can impact your financial health.
Soft inquiries, or a soft pull, will not affect your credit score. These types of credit checks will not show up on your credit report and do not usually require your permission to run — that said, there are a few instances where a potential lender will ask you for your permission prior to pulling the report. This is the most routine type of check and could happen for a few reasons:
- You check your own credit score online.
- An employer views your credit score as part of a background check.
- A credit card company pre-approves you for a card.
- You open an insurance policy, such as renters, car, or life insurance.
A hard inquiry, or hard pull, is when a potential lender looks at your credit report from a credit bureau to determine if you’re eligible for a loan or line of credit. These are more extensive than a soft inquiry, as they offer a more detailed report inclusive of your full credit report, past hard inquiries, payment history, and public record information. Below are a few common reasons why you may require a hard credit check:
- You’ve applied for a new credit card and they’re checking your credit history.
- You’ve signed up for a new cell phone plan.
- You’re applying for a personal or business loan such as a mortgage, car loan, etc.
How Hard Inquiries Affect Your Credit Score
Unlike a soft inquiry, a hard inquiry may lower your credit score by zero to five points, depending on your credit history. Additionally, a hard inquiry stays on your credit report for two years, although your credit score should bounce back from this inquiry after about one year.
With this in mind, it’s smart to be conservative when it comes to filling out applications that require hard credit checks, as a few points here and there will start to add up if your score takes multiple hits in a short period of time. This may impact your ability to get a loan, rental, or new line of credit.
Additionally, If a potential lender reviews your credit report, and sees that you have recently tried to open a line of credit, it could signal financial instability or distress. This could serve as a red flag to lenders when they consider whether or not you’re a risk for them financially, and could result in them declining your request. When searching for new lines of credit, it’s best to be cognizant of your credit report activity and separate credit checks/pulls on your report over time, to eliminate any confusion about whether or not you are financially secure or able to pay the lender back.
Best Practices For Checking Your Credit Score
Even when you’re in good financial standing, you should routinely check your credit score to make sure it remains stable. A soft pull service will not show all of your credit details, however it’s a great way to quickly see where you fall on the credit and financial health scale. While it’s recommended to check it at least once a year, checking it every month may be beneficial as you’ll be able to quickly dispute any errors or recognize changes on your score.
Here’s a pro tip: when monitoring your credit report, accuracy is important as different reports can contain different information or a slightly different measurement system. With this in mind, you can set up regular credit report checks with the same online credit reporting tool. By doing this, you’ll be able to get a free copy of your report from one of the three credit bureaus (Equifax, TransUnion, Experian) three times a year — we recommend scheduling one credit report check on your calendar every four months.
Don’t worry, now that you’ve done your homework on credit scores staying consistent and monitoring your score is the easy part. Many online tools make checking your credit score convenient and free, while updating your score monthly and sending you notifications of any changes to your report.