A 2019 study by GOBankingRates found that nearly 40% of Americans don’t know their credit score. One possible reason: People are afraid that checking their score will lower it.
Your credit score is an important measurement of your financial health. It shows lenders how much you can be trusted to repay any money you borrow.
But what good is a credit score if you can’t check to see what it is?
In this article, we cover the different types of credit inquiries that impact your credit score and how to check your credit score without damaging it.
What is a credit score?
When you apply for funds like a student loan, car loan, mortgage or credit card, lenders must determine the likelihood that you’ll repay the borrowed money. To do so, lenders will look at your credit score.
Your credit score is a number that informs lenders of your creditworthiness.
Your credit score is based on your credit history, including amount of debt, number of open accounts, repayment history, and other factors. The lower your credit score, the higher the risk for lenders. Credit scores range between 300 and 850.
There are two major credit scores available — VantageScore and FICO. Most lenders use a FICO credit score, which is calculated using five different criteria:
- Payment history
- Amount owed
- Length of credit history
- Types of credit
- Credit inquiries/new credit
Lenders use FICO because it provides industry-specific feedback based on the type of loan the borrower requests. Lenders can also customize the score criteria, emphasizing factors that may be more important to them.
VantageScore relies on five different categories, ranked by how influential they are:
- Extremely influential = total credit usage and available credit
- Highly influential = credit mix and experience
- Moderately influential = payment history
- Less influential = age of credit history
- Less influential = new accounts
While lenders can customize FICO Scores, VantageScores are a bit broader and all-encompassing. They represent information presented on credit reports by the three major bureaus:
The higher your credit score, the more likely lenders are to work with you. An 800 credit score is perfect, but 670 is still a good FICO Score. Meanwhile, a 700 is considered a good VantageScore.
Higher credit scores typically mean more favorable repayment terms, such as lower interest rates. Many lenders have eligibility requirements and won’t work with borrowers whose credit score is below a certain number.
Does checking your credit score lower it?
There are two types of credit checks to consider — hard inquiries and soft inquiries. The type of inquiry used to check your credit score determines whether your score is reduced.
A hard inquiry, otherwise known as a hard pull, occurs when a lender pulls your credit history to review your personal information and financial health. Hard inquiries can also occur when opening a bank account.
Hard credit inquiries show up on your credit report, which can lower your credit score.
Although hard inquiries are removed from your credit report two years after they occur, they are necessary for major purchases like a new home. As such, if you’re working with multiple lenders to secure the best rate, you’ll have a lot of hard inquiries in a short period of time.
If you have excellent credit, multiple hard inquiries may not have any harmful effects. But if you have an average credit score, a string of hard pulls could lower you into the bad credit category.
Fortunately, recent changes to credit scores have cut down on the impact of hard inquiries. For instance, FICO recently instituted a 45-day grace period for things like home or auto loans. FICO now packages all of the hard inquiries that occur during this grace period into one hard pull, reducing its impact on your score.
A soft inquiry, or soft pull, is when you check your own credit score. Soft pulls often occur when potential lenders check your information to see if you prequalify for an offer. Other situations could be a landlord who conducts a soft credit check to verify you can pay rent or an employer who is performing a background check.
Soft credit inquiries do not harm your credit score.
The difference between a hard pull and a soft pull is that you’re not applying for credit. When you apply for credit, lenders need to conduct a hard inquiry. Otherwise, a soft inquiry will suffice.
It’s possible for soft inquiries to later become hard inquiries. For instance, a lender can perform a soft pull to determine if you are eligible for pre-approval. If you qualify, the lender will eventually need to perform a hard pull, since you’re applying for credit. But the soft pull prevents lenders from performing unnecessary hard pulls upfront and lowering your credit score.
How to check your credit score for free
Checking your credit score for free via a soft pull is useful for many reasons. Not only is this beneficial when planning for a significant financial milestone, but routine credit monitoring could also help prevent identity theft.
Under the Fair Credit Reporting Act, Americans are entitled to one free credit report from each of the three bureaus each year. This is the most reliable way to check your credit score for free.
Each of the bureaus use a different credit scoring model. As such, what appears on one credit report may not show up on another. Requesting and checking reports from all three credit bureaus is best. You can do so via annualcreditreport.com, a trusted third-party source.
You’ll see your credit score on the report and view your credit history and details. Look through the reports for any inconsistencies or fraudulent transactions. Doing so allows you to catch identity theft early. Be sure to verify that:
- The credit accounts listed are accurate
- Credit utilization is correct
- Your payment history is right
Should you find an error, contact the creditor right away to correct it. You can also dispute the error with the credit bureaus. Fixing an error on your credit report can actually help your credit score.
Check your credit report once a year, at a minimum. If you want to check it more often — say, once a month or multiple times leading up to a big purchase — you may need to rely on your credit card company.
Many credit card issuers provide access to free credit score checks. This feature is one of the best ways to check your credit score for free without lowering it.
When you log in to your credit card’s website to pay your bill or check your statement, you should see a section for a free credit score check. Some financial institutions update this weekly, while others do so monthly.
What to do if you check your score and it’s low
If you check your credit score and realize that it’s lower than you’d like, you can take some corrective actions to change it. One of the best ways to improve your score is to pay down debt.
Debt wreaks havoc on a credit score because it indicates that you spend more than you can repay. If you have substantial debt, your credit utilization is likely high, which lowers your credit score.
Consider using a service like Tally to start paying off credit card debt. Tally helps you pay down debt across multiple credit card accounts. Tally can help you save money on interest and pay down debt faster. Tally pays all your cards for you, and you only have to make one monthly payment to Tally.
If you prefer to pay down debt on your own, consider using either the debt avalanche or debt snowball method. Also, check your credit report for errors or inconsistencies that could be weighing down your score. Eliminate anything that would cause a hard pull, such as applying for a new credit card.
Know your credit score and get closer to financial freedom
Having a high credit score opens more financial avenues. It makes you eligible for better rates from lenders, especially since most lenders have thresholds or minimum score requirements.
Your credit score provides a snapshot of your financial health. The higher it is, the better. You don’t need a perfect 800 score — 670 is a good FICO Score and 700 is a good VantageScore.
However, the type of credit inquiry impacts your credit score dramatically. A soft inquiry will not damage your score, while a hard pull will. If you want to check your credit score for free via reports from the three credit bureaus or your credit card company, you can do so without lowering your score.
Monitoring your credit score and ensuring that your report is accurate will help get you closer toward your financial goals. If you realize that your score is lower than you want, consider using a debt manager like Tally to pay down credit card debt faster and begin rebuilding your credit.