Does Checking Your Own Credit Hurt Your Credit Score? The Truth Revealed

Since the passage of the Fair and Accurate Credit Transactions Act (FACTA) in 2003, Americans have had the right to receive free annual copies of their credit reports. However, despite this right, a surprising number of consumers hold a common misconception: they believe that checking their own credit will harm their credit scores. In this article, we will debunk this myth and shed light on the truth about how checking your credit affects your credit score.

Understanding the Misconception

A recent survey commissioned by CardRates revealed that a significant 25% of consumers believe that checking their own credit reports will have a negative impact on their credit scores. This belief can lead to hesitation in monitoring one’s credit health, which is essential for financial well-being. Addressing this misconception is crucial to encouraging proactive credit management.

The Truth About Credit Inquiries

The key to dispelling this myth lies in understanding the different types of credit inquiries. When you or a party, including yourself, access your credit reports, a credit inquiry is generated. However, the type of inquiry matters significantly.

» Soft Inquiries

When you pull your own credit reports, a “soft” inquiry is recorded. Soft inquiries are harmless and have no bearing on your credit score. They are visible only to you and not to lenders or credit scoring models. These inquiries occur when you check your credit, when pre-approved offers are generated, or during employment background checks.

» Hard Inquiries

On the other hand, “hard” inquiries are generated when you apply for credit, such as a loan or credit card. Hard inquiries are visible to lenders and can affect your credit score, albeit minimally. Hard inquiries typically occur when a lender reviews your credit report to make a lending decision.

The Impact of Inquiries on Credit Scores

It’s crucial to recognize that even if hard inquiries affect your credit scores, their impact is relatively minor. In most credit scoring models, inquiries account for only 10% of your overall score. Therefore, they hold a small share of influence compared to other factors like payment history and debt management. Typically, a single hard inquiry can reduce a credit score by a few points, but the effect diminishes over time and disappears after two years.

How to Safely Check Your Credit Scores

To ensure that checking your credit remains a safe practice, here are some recommended methods:

Credit Reports: To check your credit reports, use authorized sources such as AnnualCreditReport.com or the credit bureaus’ own websites. These sources provide soft inquiries and are free. FACTA allows consumers to access their credit reports from each of the three major bureaus (Equifax, Experian, and TransUnion) once per year at no cost.

Credit Scores: If you want to monitor your credit scores, consider options like FICO’s Open Access program, which allows certain card issuers to provide FICO scores to cardholders at no cost. Alternatively, the three major credit bureaus offer free FICO or VantageScore credit scores through their websites.

Check Both FICO and VantageScore: To cover all bases, check both FICO and VantageScore credit scores, as they are commonly used in the credit market. VantageScore is gaining traction and will soon be used for all Fannie Mae and Freddie Mac mortgages. Understanding both scores can provide a more comprehensive view of your credit health.

The Importance of Regular Credit Checks

Checking your credit reports and scores from authorized sources does not harm your credit scores. By doing so regularly, you empower yourself with knowledge about your credit status, just like your lenders. Regular credit checks allow you to detect errors or signs of identity theft early, manage your credit more effectively, and make informed financial decisions.

With the ease of access to free credit reports, there’s no reason not to stay actively engaged in monitoring your credit health. Regular monitoring helps ensure that your credit information is accurate and up to date, which is essential for maintaining good credit health and avoiding potential financial pitfalls.

Conclusion

The belief that checking your own credit hurts your credit scores is a misconception. Soft inquiries, generated when you check your own credit, have no negative impact on your credit score. Understanding this fact is crucial for individuals who wish to take control of their financial well-being.

Regularly checking your credit reports and scores is a responsible financial habit that everyone should embrace in today’s credit-conscious world. By staying informed and proactive, you can safeguard your credit health and make sound financial decisions.