How Bad is a Credit Check for Credit Score Health?

Your credit score is an important part of life! It helps you get housing, financing, and more. However, your credit score has a variety of different factors that can affect it. It can be hard to understand what to do, what not to do, etc. A popular myth that plenty Americans hear is that checking your credit score can cause it to lower. However, that’s not the case! It is important to know the truth behind your credit score so that you can better manage it. Properly managing your credit can mean a better credit score which comes with plenty of benefits!

Understanding What a Credit Score Is

Sadly, not everyone has a clear understanding of what a credit score is. This lack of knowledge can mean a world of difference for your credit score. Your credit score is a number that usually falls between 300 to 850. This score is what lenders use to better understand how you are as a borrower. Which means they can better understand the risk that they face if you borrow money.

Your credit score is calculated by credit bureaus that use information found on your credit report. Your credit report has information about your credit file like hard credit inquiries, late payments, and more. The credit bureaus use scoring models in order to calculate your score. There are two main scoring models which are the FICO model and the VantageScore model. However, the FICO model is much more common.

What Factors Affect Your Credit Score?

There are 5 main factors that affect your credit score. Since the FICO model is more popular, we will be using that as our reference for how these factors impact your credit score. The factors that affect your credit score include:

Payment History
Credit Utilization Ratio
Age of Credit
Types of Credit Accounts
Hard Credit Inquiries

Payment History

This is the most important factor of your score. That is because it accounts for 35% of it! Your payment history would include information about how you handle payments. Any late payment, on-time payments, collections accounts, etc. will have a big effect on your score.

Credit Utilization Ratio

Your credit utilization ratio is basically a fancy way of describing your credit usage. This ratio looks at the amount of credit you are using compared to your overall credit limit. For example, if your credit limit is $1,200 but you are using $960 then your credit utilization ratio would be 80%. This is the second most important factor of your score and accounts for 30% of it.

Age of Credit

The age of your credit is the third most important factor of your score. It accounts for 15% of it. This includes the average age of your accounts, your oldest account age, your newest account age, etc.

Types of Credit Accounts

Many people do not realize that there are 2 main types of credit accounts. There are installment loans and revolving credit. Having a more diverse credit file can mean a healthier score since it shows lenders that you can handle multiple types of credit. However, it only accounts for 10% of your score.

Hard Credit Inquiries

There are 2 types of credit inquiries. There are hard credit inquiries and soft credit inquiries. While soft credit inquiries do not have an impact on your credit score, hard credit inquiries do. That’s because soft credit inquiries are used to prequalify an individual while hard credit inquiries actually provide access to creditors to get an in-depth look at your credit file. This factor impacts your credit the same way that the types of credit accounts do. That means it only affects 10% of your score.

Will Checking Your Credit Affect Your Credit Score?

There are two ways that people check their credit score. They either do it on their own or allow a creditor to do it. Since your credit score goes down if a creditor checks your score, there is a common myth in America that your score will go down if you check your score. That is not the case! While creditors checking your score can lead to a decrease since it requires a hard credit inquiry, you can check your score on your own for no penalty. That’s because it is a soft credit inquiry. Typically, a hard credit inquiry can lower your score by up to 5 points. Checking your score on your own will lower your score by 0 points.

How to Check Your Credit Score?

There are plenty of ways that you can check out your score! You can:

Check with Your Financial Institution
Use a Third Party App

Check with Your Financial Institution

If you want to check out your score, you can check with the company of your credit card. Discover, Capital One, Chase, etc., are examples of financial institutions that have this information readily available. Let’s look at an example! Let’s say that you have a Discover credit card. You can login to Discover’s customer portal, and see what your FICO score is. While it may not be 100% accurate, it is a good ballpark of what lenders see when they look at your credit file.

Use a Third Party App

Another way that you can check out your credit score is with a third party app. There are many different apps that you can use like Credit Karma, Mint, etc. These apps allow you to check out your credit score and get a better understanding of it on their platform!

How Often Can You Check Your Credit Score?

You can check your credit score as often as you’d like! A good credit practice is to regularly monitor your credit. This can help you identify any issues if they arise and keep you on top of your credit health.

However, if you are curious to know how often lenders should check your credit score, that is a different answer. You should not submit too many hard credit inquiries at once because it can hurt your score! When lenders see multiple hard credit inquiries at once, it gives off the impression that the consumer is desperate for credit because they cannot handle something financially on their own. While that may not be the case, that is a risk factor that lenders consider (which is one reason why it negatively impacts your score).

Tips for Improving Your Credit

Now that you have a clearer understanding of your credit score, you may realize that you want to focus on making it better! There are so many different ways that you can improve your credit. Some ways include:

Get Into Better Credit Habits
Receive Advice from a Credit Counselor
DIY Credit Dispute

Frequently Asked Questions

Understanding your credit scores, the factors that affect your score, etc., can be a little confusing. Especially if this is a topic that you aren’t used to dealing with. That is why you may have some questions that other people have had too!

How do Creditors Check Your Credit Score?

The way that creditors check your score is different from how you check your score. In order for them to access your credit file, you need to provide written authorization. Once they have this authorization, they will get an in-depth look at your credit file!

What are Some Examples of a Hard Inquiry and a Soft Credit Inquiry?

Understanding the difference between a hard inquiry and a soft credit inquiry can feel confusing. Luckily, it does not have to! Some examples of a soft credit inquiry would include:

You check your own credit
A company sends you preapproved offers based on your credit score
You request a prequalification check from a creditor

On the other hand, some examples of a hard inquiry would include:

Your landlord performing a credit check so you can move in
A financial institution checking your credit to see if you qualify for financing
A car dealership checking your credit to see if you can qualify for financing

How Bad is a Credit Check for Credit Score Health?

If it is a soft credit inquiry like when you perform a credit check on your own, it has no impact on your credit score. However, if it is a hard credit inquiry, it can lower your score by up to 5 points.

What Can Make Your Credit Score Lower?

It’s important to know ways that you can lower your credit score, especially if you are working on better handling your credit! There are plenty of ways that you can lower your credit score. You want to make sure to learn these ways so you can avoid making the same mistakes that others have made when handling their credit! You could lower your credit score if you:

Make late payments
Have accounts of yours go to collection agencies
Apply for too much credit in a short period of time
Have too high of credit usage
Close credit card accounts

Do You Need to Submit a Hard Credit Inquiry for a Credit Card?

If you are interested in getting a credit card, you should expect to need a hard credit inquiry. That’s because a credit card still involves you borrowing money (in the form as a line of credit). Creditors need to see this information in order to understand whether or not you are eligible.

Bottom Line

There are a lot of myths around credit scores. A popular one is that checking your credit score can actually lower it. Luckily, this isn’t true! While checking your credit score on your own won’t lead to a negative impact (since it’s a soft credit inquiry), there are ways that credit checks can lower your score. Hard credit inquiries, like credit checks performed by creditors, can lower your score by up to 5 points! That is why it is important to be mindful when applying for new lines of credit. If you have any more questions about your credit you may benefit from getting in touch with a professional. You can speak to a credit counselor, or even your local personal banker!