A credit score is a number between 300 and 900, which depicts the borrower’s creditworthiness. It is determined by credit bureaus and a lot of factors including your past payment history, credit utilization, number of hard inquiries on your credit profile, etc, are considered while calculating your credit score. Some people are reluctant to check their credit scores because they assume that checking their credit score often would lower it.
Additional Read: What is Credit Score? – Learn Everything You Should Know
Lowering of credit scores depends on multiple factors such as not paying debt on time, applying for many credit cards at once, number of hard inquiries, etc. Essentially, there are a few terms such as soft inquiry and hard inquiry, which will help you understand whether checking your credit score will impact it or not. Read further to know more about it:
What is a soft inquiry?
A soft inquiry, sometimes also called a soft credit check happens either when :
- You check your credit score.
- An employer checks your credit score with your permission.
- A lender checks your credit profile to pre-qualify or pre-approve you for an offer.
Do soft inquiries lower your credit score?
Soft inquiries don’t impact your credit score because they aren’t related to a specific credit application. Also, when you fill out a form to get prequalified for loans or mortgages, the lender would run a soft credit inquiry and that wouldn’t affect your credit score. Soft inquiries are visible on your credit report to you for a period of 12 to 24 months, depending on the type.
What is a hard inquiry?
When you apply for a new credit card or a loan, the credit card company wants to see your credit history to analyze if you can be trusted as a borrower. Your financial behavior in the past, such as the balances on credit cards, the number of previous credit card applications submitted, and payment history helps them decide whether to approve you for credit and determine your creditworthiness. Essentially, the lender is assessing how likely you are to pay back the borrowed money.
To get the credit information that they require, the lender requests your credit report from the credit card bureaus and that creates a hard inquiry. Hard inquiries stay on your credit report for about 2 years and are visible to any further credit lenders. Different issuers interpret hard inquiries on your credit report differently.
Do hard inquiries lower your credit score?
Hard inquiries have a negative impact on your credit score. A credit score is determined by a mix of factors and a new credit inquiry, often called a hard inquiry, contributes to 10% of your credit score. Even though it is a fairly small percentage, it can decrease your credit score by up to 5 points. One thing to note here is that even though the hard inquiries are visible on your credit report for 24 months, the impact of hard inquiries on your credit score remains for a period of 12 months. So the decrease in the credit score is temporary and if you use your credit card strategically, the credit score can bounce back up.
Further, if many hard inquiries are created on your account in a short span of time, it can have a greater impact on your credit report and score. This happens because it implies to the lender that you are in desperate need of cash and your chances to land in debt are more. So, according to them, you are a high-risk borrower.
Is Checking Your Own Credit Score important?
As opposed to what people usually think, checking your credit score regularly is very important. Checking your credit score yourself is counted as a soft inquiry and does not lower it. Checking your credit score regularly helps you in maintaining a higher number. Also, if you have a low credit score, it could enable you to identify the reasons that might have caused it. In some cases, a too low score indicates inaccuracies in credit reports or fraud. The sooner you rectify it, the faster you can find a solution for it.
A credit score takes weeks or months to improve and if you check it right before applying for a loan or a new credit card, you won’t have the time to fix it. People who check their credit score often are more accountable and track their credit card spendings in a better way. It also motivates them to budget down if they need to or make any other required changes to improve their credit score. Hence it is important to keep a tab on your credit score from time to time.
How often can you check your credit score?How often can you check your credit score?
You can check your credit score as many times as you want to. The number of soft inquiries won’t affect your credit checking your credit score regularly is encouraged. If you are aiming to build your credit, check your credit score once every few months. Also, checking your credit report is essential too. While a credit score is a numerical summary of your credit report, the credit report consists of the actual data related to your credit history. When seeing your credit report, have an eye for things that you don’t recognize. If you think that some data might be inaccurate, contact the card issuer to confirm if it’s legitimate. Also, when you are applying for a home loan, credit card, auto loan, or something else, make sure to check your credit score and credit report at least a few weeks before. This could help you rectify any problems related to your credit that you might face during the application process.
How to check your credit score?
You can check your credit score through the official website of any of the four major credit bureaus in India, which are CIBIL, Equifax, Experian, and CRIF Highmark. Out of these, CIBIL is the most popular and major credit bureau in the country. So, let us take the example of CIBIL and understand how to check your own credit score.
The CIBIL generates a credit score (a 3-digit number which lies in the range of 300 and 900), in which a score below 580 is usually considered poor and above 750 as excellent. To find your CIBIL rating, follow the steps listed below :
- Go to the CIBIL’s official website and click on the tab “know your score”
- Fill up the form which asks for credit relevant details such as name, date of birth, ID proof, and email address
- Fill out your pan details correctly and then answer all questions about your credit cards and loans based on which your CIBIL report will be generated
- Next, you will be guided to the payments page where you will be suggested subscriptions, but if you haven’t opted for the one-time free report before in the current year, you can opt for that.
- Then using the ID and password that you created in step 2, login to your account
- You will be asked to authenticate through the email that you registered, click on the link, and enter your password
- Once you login, you will be asked to submit a form that would be filled by default with the details you entered before.
- Once you submit that, you would be able to see the dashboard with the CIBIL score.
Note: The CIBIL report is free once a year. Other subscriptions are priced at:
– Rs. 550 a month for one month ;
– Rs. 800 for 6 months.
– Rs. 1,200 for a year.
It is advised that you check your credit report at least a few times a year to maintain a healthy credit score and in case of discrepancy contact the concerned party ASAP.
The Bottom Line
Checking your credit score regularly is a healthy financial habit that helps you maintain a good score and keeps you accountable. Closely monitoring it will enable you to rectify issues that are lowering it and prevent you from making those financial decisions again. It is also recommended that you check your credit score before applying for a new credit card because an application rejection will cause your credit score to lower and that is exactly what you want to avoid. Further, there are multiple other sites apart from CIBIL such as Experian and Equifax through which you can check your credit score and keep yourself updated.