In today’s world, credit scores play a crucial role in our financial lives. Whether it’s applying for a loan, mortgage, credit card, or any other type of credit, our credit scores are often the determining factor in whether we get approved and at what interest rate. As such, it’s natural to wonder: will my credit score decrease when it is checked? In this article, we’ll explore the answer to this question and dive deep into the factors that can impact your credit score when it is checked.
Understanding Credit Scores
Before we delve into the effects of checking your credit score, let’s first understand what a credit score is and how it is calculated. A credit score is a numerical representation of your creditworthiness, which is based on your credit history, payment behavior, and outstanding debt. It is typically a three-digit number ranging from 300 to 850, with a higher score indicating better creditworthiness.
Credit scores are determined by credit reporting agencies, such as Equifax, Experian, and TransUnion, using mathematical algorithms that analyze your credit data. There are different types of credit scores, but the most commonly used is the FICO score, developed by the Fair Isaac Corporation. Your FICO score is based on five main factors: payment history, credit utilization, length of credit history, new credit inquiries, and credit mix.
The Impact of Checking Your Credit Score
Now, let’s address the pressing question: will your credit score decrease when it is checked? The short answer is no. When you check your own credit score, also known as a soft inquiry, it does not have any impact on your score. This is because soft inquiries are not visible to lenders and do not affect your creditworthiness.
However, when a lender or creditor checks your credit score, also known as a hard inquiry, it can have a slight impact on your credit score. According to FICO, one hard inquiry typically results in a decrease of less than five points in your credit score. This decrease is temporary and will only last for a few months.
Factors That Can Impact Your Credit Score When It Is Checked
While checking your credit score may not directly cause a decrease, there are other factors that can impact your credit score when it is checked. Let’s take a closer look at these factors and how they can affect your credit score.
Payment History
Your payment history is the most crucial factor in determining your credit score. It accounts for 35% of your FICO score and reflects how responsible you are with paying your bills on time. If you have a history of late payments or missed payments, it can significantly lower your credit score, making it harder for you to get approved for new credit.
When a lender checks your credit score, they are looking for red flags in your payment history. If they see any recent late payments or delinquent accounts, it can be a cause for concern, and they may decide to deny your application or offer you a higher interest rate.
To avoid a negative impact on your credit score, always make sure to pay your bills on time. Even a single late payment can have a significant impact on your credit score.
Credit Utilization
Credit utilization refers to the amount of credit you have available versus the amount you are currently using. It accounts for 30% of your FICO score and is a crucial factor in determining your creditworthiness. A high credit utilization ratio, meaning you are using a large percentage of your available credit, can negatively impact your credit score.
When a lender checks your credit score, they want to see that you are responsibly managing your credit and not maxing out your credit cards or lines of credit. If they see a high credit utilization ratio, it can indicate that you may have difficulty repaying new credit, and they may be hesitant to approve your application.
To keep your credit score in good standing, it’s essential to keep your credit utilization below 30%. This means not using more than 30% of your available credit at any given time.
Length of Credit History
The length of your credit history is also a vital factor in determining your credit score. It accounts for 15% of your FICO score and looks at how long you have had credit and the age of your oldest account. A longer credit history indicates to lenders that you have experience managing credit and can accurately predict your credit behavior.
When a lender checks your credit score, they want to see a well-established credit history with a mix of different types of credit, such as loans and credit cards. If you have a short credit history or no credit history at all, it can make it challenging to get approved for new credit.
To build a strong credit score, it’s important to establish credit early on and maintain a diverse mix of credit types over time.
New Credit Inquiries
Whenever you apply for new credit, a hard inquiry is recorded on your credit report. As mentioned earlier, one hard inquiry typically results in a temporary decrease of less than five points in your credit score. However, multiple hard inquiries within a short period can have a more significant impact on your credit score.
When a lender checks your credit score, they are looking for any recent inquiries into your credit. If they see multiple inquiries, it can indicate that you are applying for credit frequently, which can be a red flag to potential lenders.
To avoid a negative impact on your credit score, it’s best to limit the number of credit applications you make in a short period. Instead, only apply for credit when you truly need it.
Credit Mix
Finally, your credit mix accounts for 10% of your FICO score and looks at the different types of credit you have. It’s beneficial to have a mix of installment loans, such as mortgages or car loans, and revolving credit, such as credit cards, to demonstrate your ability to manage different types of credit.
When a lender checks your credit score, they want to see that you are capable of managing different types of credit responsibly. If you only have one type of credit on your report, it can limit your credit score and make it challenging to get approved for new credit.
To improve your credit score, consider diversifying your credit mix by adding different types of credit over time.
How To Use Will Credit Score Decrease When It Is Checked
Now that we’ve established that checking your credit score will not directly cause a decrease, let’s discuss how to use this information to benefit your financial health. The best way to use this knowledge is to be proactive in checking your credit score regularly. By doing so, you can monitor any changes in your score and take action to improve it if needed.
It’s recommended to check your credit score at least once a year from each of the three credit reporting agencies. You can also use free credit monitoring services offered by websites like Credit Karma and Credit Sesame to keep an eye on your score throughout the year.
Examples of Will Credit Score Decrease When It Is Checked
To provide a real-life example, let’s say you are applying for a mortgage. The lender will check your credit score during the application process, resulting in a hard inquiry on your credit report. This may cause a slight decrease in your credit score, but it should have little impact on your overall creditworthiness.
Alternatively, let’s say you are applying for multiple credit cards within a short period. Each application will result in a hard inquiry, which can have a more significant impact on your credit score, potentially lowering it by several points. In this case, it’s crucial to monitor your credit score closely and limit the number of new credit applications to minimize the impact.
Comparing Will Credit Score Decrease When It Is Checked
There are various factors that can affect your credit score, and checking it is just one piece of the puzzle. Other factors include your payment behavior, credit utilization, length of credit history, new credit inquiries, and credit mix. While checking your credit score may result in a temporary decrease, it’s essential to focus on improving these other areas to maintain a healthy credit score.
Advising Will Credit Score Decrease When It Is Checked
Based on our understanding of how credit scores work, it’s clear that checking your credit score will not directly cause a decrease. However, it’s essential to be mindful of the other factors that can impact your credit score when it is checked. By maintaining good payment habits, keeping your credit utilization low, and diversifying your credit mix, you can ensure that your credit score remains in good standing.
FAQs
1. How often should I check my credit score?
It’s recommended to check your credit score at least once a year from each of the three credit reporting agencies. You can also use free credit monitoring services offered by websites like Credit Karma and Credit Sesame to keep an eye on your score throughout the year.
2. Can checking my credit score too often hurt my credit?
No, checking your own credit score does not have any impact on your credit score. It’s only when lenders or creditors check your credit score that it can potentially have a slight impact.
3. How long do hard inquiries stay on my credit report?
Hard inquiries stay on your credit report for two years but only affect your credit score for the first 12 months.
4. Can I improve my credit score if it decreases after being checked?
Yes, you can improve your credit score by focusing on areas such as payment behavior, credit utilization, length of credit history, new credit inquiries, and credit mix.
5. Will my credit score decrease if I check it multiple times?
No, checking your own credit score multiple times will not decrease your credit score. It’s only when lenders or creditors check your credit score that it can potentially have a slight impact.
Conclusion
In conclusion, checking your credit score will not directly cause a decrease in your credit score. However, other factors such as payment behavior, credit utilization, length of credit history, new credit inquiries, and credit mix can impact your credit score when it is checked. By staying proactive and monitoring your credit score regularly, you can ensure that it remains in good standing and improve it over time. Remember to focus on building healthy credit habits and diversifying your credit mix to maintain a strong credit score for future financial opportunities.
