Demystifying the Myth: Does Checking Your Credit Score Really Lower It?

Understanding Credit Scores

Credit scores play a crucial role in our financial lives. They determine our creditworthiness and influence our ability to secure loans, credit cards, and even rent an apartment. However, there are many misconceptions surrounding credit scores, one of which is whether checking your credit score can lower it. In this article, we will delve into this myth and uncover the truth behind credit score inquiries.

To understand the impact of checking your credit score on its value, it is essential to first comprehend how credit scores are calculated.

How Credit Scores are Calculated

Credit scores are a numerical representation of an individual's creditworthiness. They are calculated based on various factors such as payment history, credit utilisation, length of credit history, types of credit, and new credit inquiries. These factors are analysed by credit reporting agencies, such as Equifax, Experian, and TransUnion, using complex algorithms to generate a three-digit credit score.

The calculation of credit scores involves weighing each factor differently, with some factors carrying more weight than others. Payment history, for instance, carries significant weight as it reflects an individual's ability to make timely payments. Credit utilisation, on the other hand, measures the amount of available credit being utilised, with lower utilisation indicating responsible credit management.

The Impact of Credit Inquiries on Credit Scores

Credit inquiries refer to the instances when lenders or financial institutions request a copy of an individual's credit report to assess their creditworthiness. There are two types of credit inquiries: hard inquiries and soft inquiries. Hard inquiries occur when an individual applies for credit, such as a loan or credit card, and can potentially have a negative impact on credit scores. Soft inquiries, on the other hand, are initiated by the individual themselves or by companies performing background checks and do not affect credit scores.

The Myth of Checking Your Credit Score Lowering It

One of the most persistent myths surrounding credit scores is the belief that checking your credit score can lower it. This myth has led many individuals to avoid monitoring their credit scores out of fear that it may have a detrimental effect. However, the truth is that checking your credit score does not lower it.

When an individual checks their own credit score, it is considered a soft inquiry and has no impact on their credit score. Soft inquiries are only visible to the individual and do not affect their creditworthiness. Therefore, it is essential for individuals to monitor their credit scores regularly to stay informed about their financial standing.

The Truth Behind Credit Score Inquiries

While checking your credit score does not lower it, it is important to be aware of the potential impact of hard inquiries. When you apply for credit, such as a loan or credit card, the lender will usually perform a hard inquiry to assess your creditworthiness. These inquiries can slightly lower your credit score, typically by a few points.

However, the impact of hard inquiries is temporary and diminishes over time. Credit scoring models are designed to take into account that individuals may shop around for the best loan or credit card rates. As a result, multiple inquiries made within a short period for the same purpose are usually treated as a single inquiry, minimizing the potential negative impact on credit scores.

Different Types of Credit Inquiries

It is important to distinguish between the two types of credit inquiries: hard inquiries and soft inquiries.

Hard inquiries occur when you apply for credit and give the lender permission to review your credit report. These inquiries are visible to other lenders and can affect your credit score, although the impact is typically minimal and short-lived.

Soft inquiries, on the other hand, are initiated by individuals themselves or by companies performing background checks. These inquiries have no impact on credit scores and are only visible to the individual.

The Role of Credit Monitoring Services

Credit monitoring services have gained popularity in recent years as individuals seek to stay informed about their creditworthiness. These services allow individuals to regularly monitor their credit reports, track changes, and receive alerts in case of any suspicious activity.

Credit monitoring services typically use soft inquiries to provide individuals with access to their credit scores and reports. As mentioned earlier, soft inquiries do not affect credit scores, making credit monitoring a safe and beneficial practice for individuals looking to stay on top of their financial health.

Credit Karma and Its Impact on Credit Scores

Credit Karma is a popular credit monitoring service that provides individuals with free access to their credit scores and reports. However, many individuals wonder if checking their credit scores on Credit Karma can lower their credit scores.

As mentioned previously, checking your own credit score on Credit Karma is considered a soft inquiry and does not have any impact on your credit score. Credit Karma retrieves credit scores and reports from TransUnion and Equifax, two of the major credit reporting agencies. The soft inquiries generated by Credit Karma are not visible to other lenders and do not affect creditworthiness.

Tips for Maintaining a Good Credit Score

Now that we have debunked the myth of checking your credit score, it is important to focus on maintaining a good credit score. Here are some tips to help you achieve and preserve a healthy credit score:

1. Pay your bills on time: Timely payments are one of the most significant factors in calculating credit scores. Make sure to pay all your bills, including credit cards, loans, and utilities, by their due dates.

2. Keep credit utilisation low: Aim to use only a small portion of your available credit. High credit utilisation can negatively impact your credit scores. Try to keep your credit utilisation below 30% of your total available credit.

3. Avoid opening unnecessary credit accounts: Each new credit account you open can potentially lower your credit score. Only apply for credit when necessary and avoid opening multiple accounts within a short period.

4. Monitor your credit reports: Regularly check your credit reports for any errors or fraudulent activity. Dispute any inaccuracies and report any signs of identity theft promptly.

Conclusion

In conclusion, checking your credit score does not lower it. It is crucial to understand the distinction between hard inquiries and soft inquiries. Hard inquiries made by lenders when you apply for credit can have a minor and temporary impact on credit scores. On the other hand, soft inquiries, which include checking your own credit score, have no effect on credit scores.

Credit monitoring services, such as Credit Karma, provide individuals with access to their credit scores and reports through soft inquiries. These inquiries do not harm credit scores and are a valuable tool for individuals looking to stay informed about their financial health.

By understanding how credit scores are calculated and taking steps to maintain a good credit score, individuals can navigate the world of credit with confidence and make informed financial decisions.

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