If you're considering applying for a loan, car finance, a credit card, an overdraft, or any other type of credit, it's a good idea to check your credit report. However, there's a lot of misinformation out there about credit scores. For example, some individuals feel that having a credit card balance is the best method to raise your credit score, which isn't true.
Many people are hesitant to obtain a copy of their credit reports or check their credit scores for fear of damaging their credit scores.
The good news is that checking your own credit report or credit score does not affect your credit report. Checking your credit reports and ratings on a regular basis might help you determine if you're eligible for a loan. However, these days you don't even need to check your credit score before purchasing a car since you can now get car finance without a credit check.
This article will dispel the mystery of credit scores and explain how to check them without affecting them.
Credit reports provide information on current and previous credit accounts, as well as legal judgments such as liens and bankruptcies. A credit card or loan provider will record your usage with one or more credit bureaus, which will then be included in your credit report. Equifax, Experian, and TransUnion are the three credit bureaus that produce credit reports.
A credit score is a three-digit figure between 300 and 850. The score is calculated using an algorithm that considers all of the information on your credit report. The higher your score, the more reliable a borrower you appear to be.
FICO and VantageScore are the two main firms producing credit scores. FICO accounts for 90% of all credit ratings utilized by lenders, whereas VantageScore is more popular among free credit scoring services. Both firms employ comparable scoring methodologies to calculate your ratings, so the difference between a FICO score and a VantageScore should be minimal.
There are dozens of different credit scoring formulas, and which one is applied depends on the type of lender. A credit score seen by an auto lender, for example, may differ slightly from one seen by a mortgage lender.
Credit scores can be checked at any time. If you create an account with a free site, you'll regularly receive score updates through email—sometimes as frequently as once a week.
A good rule of thumb is to check your credit score at least once every few months, especially if you're trying to build your credit.
Consumers can obtain free credit scores from various sources, including credit card companies and personal finance websites. However, you may have to pay if you want a specific version from a specific credit bureau.
If you apply for a lot of credit in a short period, a lot of 'footprints' will be left on your file each time a hard search is done, which might damage your credit score. If a lender notices many marks on your credit report, they might think you're desperate for money and turn you down.
Other factors that might affect your credit score are:
Before submitting a formal application, use an eligibility calculator to determine your chances of approval by conducting a 'soft search' without leaving a mark on your records.
Any lender or card issuer will look at your application and payment history before you apply for credit, so it makes sense to know what they'll see. However, you can easily opt for car finance without a credit check these days.
Credit monitoring might help you avoid credit risk and waste points by applying for products you are not eligible for. Keeping an eye on your credit score can help you spot possible issues, such as a fraud account being created in your name or a bill that went unpaid and went to collections.
These issues can be dealt with quickly and easily if you periodically check your score. Before applying for a home loan or other large purchase, you should examine your credit report to see if any errors need to be corrected.
Checking your credit report has no negative consequences if done personally, so it's not something you should be concerned about. Experian, Equifax, and TransUnion are the three credit bureaus in the United Kingdom, and you can check your credit score with them for free.
There are many different types of credit scores, and some of them have multiple versions. When checking your credit score, ensure you're using the same credit score and version each time. You're comparing apples to oranges otherwise. Although credit scoring models measure the same factors, they may weigh them differently and utilize various scales.
Performing a self-check on your credit file does not affect your final score. However, submitting many personal or car loan applications or applying for an additional credit card in a short period impacts your score. It can make a lender believe you are in financial difficulty, which will make them less eager to lend to you.
A soft inquiry, also known as a soft pull in the industry, is a credit search that does not leave a mark on your credit report. Here are a few examples:
You can perform a soft credit inquiry as often you like without fear of repercussions since a potential lender will not see a soft inquiry on your credit report. They will stay on your credit reports for 12 to 24 months and only be visible to you.
The other type of inquiry is a hard inquiry or hard pull. A hard credit inquiry can affect credit scores and lower them. It occurs when:
For a set length of time, often 14 to 45 days, multiple hard inquiries are classified as one hard inquiry.
In most circumstances, a single hard inquiry will not significantly affect whether you are approved for a new credit card or loan. And the damage to your credit scores generally fades or vanishes even before the inquiry is permanently removed from your credit reports.
At the end of the day, a hard inquiry can still hurt your credit score. Therefore, you should proceed with caution when applying for any of the credit options mentioned above.
Your credit score has a significant impact on your overall credit health. You should make a serious effort to boost your credit score before you apply for car finance or any other sort of loan. Your chances of getting the best terms and rates on the financial products you need will increase if you have a good credit score.