The following post is a guest blog by Stacy B. Miller of OVLG.com. Want to write a guest blog for us? Read our guidelines.
Do you avoid checking your credit report in fear of hurting your credit score? If so, here’s some good news — you can check your credit report without lowering your score.
In fact, you can check your credit reports as many times you want. It won’t affect your credit score — at least negatively. Rather, you’ll get a chance to improve your score.
Before I dig deeper into why that is, let me first explain the difference between hard inquiries and soft inquiries, since it’s vital to understanding how credit checks affect your score.
What is the difference between a hard inquiry and soft inquiry?
Hard inquiries happen when you apply for credit and the creditor views your credit report — when you apply for an auto loan, for example, or a mortgage or credit card. The creditor checks your credit report as part of the application process. This application process is extremely important as it helps the creditor to decide if it should give a credit card or loan to the applicant and at what interest rate.
On the contrary, soft inquiries happen when you’re checking your own credit report.
Hard inquiries hurt your credit score. A hard inquiry stays on your credit report for 2 years and drops your score by a few points, with the effect lessening over time.
Soft inquiries, on the other hand, do not hurt your score.
Soft inquiries usually happen in 2 scenarios. The first scenario is when the employer checks your credit report before recruiting you. The second scenario happens when:
- you pull your credit report, or
- a financial institution checks your credit report to pre-qualify you for a marketing offer.
Soft inquiries will appear on your credit report but won’t drop your score.
What do the statistics reveal?
Discover conducted a survey in 2016, with the following results:
- 73% of consumers who checked credit reports more than 7 times felt that this made a positive impact on their credit.
- 44% of consumers who pulled their credit report once a year had a similar feeling.
- 76% of consumers felt that their credit score improved after regularly monitoring their credit report.
As you can see, there is some evidence to suggest that your credit score may increase after you check your credit report. However, it’s not the credit check itself that increases your score. The effect is indirect – and isn’t surprising.
When you check your credit report, you find the following items:
- Applicant information
- Public information
- Credit items
- Accounts in good standing
- Consumer statements
Basically, you get a glimpse of your credit history. You come to know about the accounts that are in good standing and about your past-due accounts. Once you’re aware of them, you can take steps to make them current. The best option is obviously to pay off the debts in full. If there is a financial crunch, then you have two options.
(i) Ask for an affordable repayment plan: You can contact your creditors and explain the reasons you couldn’t pay off the debt. Inform them that you’re in a financial crunch. Request an affordable repayment plan so that you can clear the outstanding balance as soon as possible.
(ii) Settle your debts: Suppose, the creditor doesn’t offer you a flexible repayment plan. Then, you can settle your unsecured debts such as credit cards.
If you don’t check your credit report, then you wouldn’t even know what’s wrong with your credit and wouldn’t have any chance to take any constructive steps.
In addition to unpaid accounts, inaccurate information may be dragging your score down. Suppose you have paid off your debts in full, but the creditor hasn’t reported that update information to the credit bureaus. Or, your credit report is showing that your credit cards have been charged-off, which isn’t the case in reality. Your credit score will drop in these cases, and you wouldn’t even be aware of it unless you check your credit report.
Those who check their credit reports regularly can find mistakes and problems easily – and get a chance to rectify them. So, while pulling your credit reports wouldn’t instantly raise your score, regular monitoring makes a positive impact on consumers’ credit behavior – and credit scores – over time.
The bottom line
Checking your credit report won’t drop your score. So drop all your inhibitions and check your credit report as many times as you want. Remember, you can view each of your credit reports from the major credit report agencies (Experian, Equifax and The TransUnion) for free once a year. Visit Annualcreditreport.com or call 1-877-322-8228.
Author Bio — Stacy B Miller is a content creator and editor at OVLG.COM. Her philosophy is simple – money makes your life easier. If you have it, you’re lucky. Her articles explore various aspects of the financial world. You can follow her at @stacybarbee12.