You need good credit in order to secure a loan. How do you know what your credit score is though? Without checking your reports, you could have bad credit and not know it. Luckily, checking your score doesn’t affect it. In fact, it’s recommended that you check your history several times a year and your score at least once. This way you’ll know if something inaccurate is on there. You’ll also know if you need to make changes to help increase your score.
How Checking Your Credit Score Affects It
There are two types of inquiries you can have on your credit – hard and soft. Hard inquiries affect your credit score. Each inquiry usually lowers your score by a few points. To put it into perspective, new credit makes up 10% of your score. This includes new inquiries and newly opened accounts. Generally, you could lose around 5 points for each inquiry. The exception to the rule is when you apply for the same loan with several lenders within a short period. The bureaus recognize that you are shopping around. They don’t lower your score for each inquiry. Instead, they count it as one inquiry.
Checking your own score, though, is not a hard inquiry. Instead, it’s a soft inquiry. These don’t affect your score. You likely have soft inquiries performed on your credit all of the time. If you’ve ever received a pre-approval letter in the mail for a credit card, you’ve experienced a soft inquiry. Other places that perform them are employers, insurance companies, and landlords. Soft inquiries do not lead to a new line of credit or loan.
How to Check Your Credit History
You are entitled to a free credit report from each credit bureau one time per year. There are 3 credit bureaus – Equifax, Experian, and TransUnion. The only place to legally get access to your free report is AnnualCreditReport.com. Click on “Request your credit reports” and follow the prompts. You’ll fill out a form to verify your identity. Next, you’ll choose the reports you want. You can choose all 3 at once, but then you’ll have to wait another year to do it again. We recommend checking on bureau every 4 months. This way you have the full year covered. You can do this each year to make sure your credit history is accurate.
Knowing Your Credit Score
Checking your credit history does not include the credit score, though. Today, however, many companies offer free access to your score. We recommend checking with your credit card company first. Many offer free access to your score. They even alert you when it changes. This can help you know your score. It also alerts you if there was a major change. You should know if something negative happened in your financial life. If you can’t think of anything recently, you may have some investigating to do.
If you don’t have a credit card or bank offering a credit score service, you have a few other options:
- Talk to a non-profit financial counselor – HUD counselors offer housing counseling. As a part of the process, they offer you a copy of your credit report including the score. This can help you understand your credit. It can also help you make the right purchasing decision. This is especially helpful for first-time homebuyers or those starting over after foreclosure.
- Use a credit score service – This may or may not be free. Some sites offer completely free credit score monitoring. They make their money from the advertisers on their page. Others, however, charge a subscription fee. Make sure you read the fine print before you sign up for a service so you don’t end up paying for something you don’t want.
- Buy your credit score – You can also pay for your credit score. The cost can get pretty high, though. Make sure you know the costs and the rules for canceling the service if you only want it for one-time use.
What is a Good Credit Score?
Now that you’ve checked your credit, how do you know what a good score is? Different lenders look at scores differently. In general, though, the following tiers apply:
- Exceptional – Scores over 800
- Very good – Scores lower than 800 but higher than 740
- Good – Scores lower than 740 but higher than 670
- Fair – Scores lower than 670 but higher than 580
- Poor – Scores lower than 580
It’s rare to find someone with a credit score over 800. Generally, lenders want scores higher than 700 in order to consider them exceptional. But, many loan programs allow scores within the “good” range. In fact, FHA loans will allow scores as low as 580. In some cases, they’ll even go as low as 500 as long as you have 10% to put down on the home.
How Often Should You Check Your Score?
Generally, we recommend checking your score at least once per year. However, if you are a victim of identity theft or know you have issues, you can check it more often. If there is a problem, take the steps to fix it first. Once fixed, give it a few months and then check the score again. It can take some time for your score to jump back where it belongs. Don’t expect changes overnight.
We highly recommend checking your credit score. It helps you stay on top of a very important aspect of your life. Without a good score, you may not be able to buy a home or a car. You may also not be able to rent or get good insurance premiums. Your credit affects many aspects of your life. Knowing your score can help you make the right decision. If you have negative credit reporting, take the necessary steps to fix it. Talk with a counselor if you need to, this way you know things will get done right. The bottom line is you want a good credit score. Without it, you could pay more for things in life that could make them unaffordable. Stay on top of your credit and make smart financial decisions as often as you can!