Why Your Credit Rating May Be Affected by Checking Your Credit Score

Many people are unaware that simply checking their own credit score can negatively impact their credit rating. This can be particularly surprising when carried out by well-intentioned individuals, such as concerned parents or spouses. This article explains why credit rating agencies may penalize you for viewing your score and how to avoid this unwanted effect.

Common Misunderstandings About Checking Credit Scores

One common misconception is that your credit score decreases due to self-checks. Unfortunately, while this belief stems from a genuine concern about credit health, it is not entirely accurate. Credit rating companies do not penalize you for checking your own score through authorized means. However, inquiries from other parties, such as creditors or lenders, can negatively impact your score.

What Really Causes a Hit on Your Credit Rating?

The truth is, your credit rating is most likely to suffer when significant credit activities, such as large purchases or severely high credit utilization, are flagged. For example, if you have unauthorized individuals using your credit card numbers to make purchases, this could lead to excessive credit utilization. This, in turn, can cause your credit rating to take a hit. In this scenario, it is more accurate to blame the fraudulent activity rather than your self-checks.

How Credit Rating Companies Penalize You

While credit rating agencies do not aggressively penalize you for self-checks, they do recognize hard inquiries from other sources. Each hard inquiry typically results in a modest reduction of around five points in your credit score. This drop is not permanent, as these points will eventually recover. However, if you are frequently applying for credit, the cumulative impact can be significant over a period of about 12 months.

Understanding Hard and Soft Inquiries

It is essential to understand the difference between hard and soft inquiries:

Hard Inquiry: This occurs when a lender or credit card company checks your credit report to assess your creditworthiness. Each hard inquiry can negatively impact your credit score. Soft Inquiry: This happens when you, as the individual, check your own credit score. Soft inquiries do not affect your credit score.

Therefore, while self-checking your credit score should not decrease your score, shopping around for the best credit card offers within a 14-day window is treated as a single inquiry. This is beneficial as it reduces the number of hard inquiries on your credit report.

Best Practices to Avoid Unwanted Credit Dings

To protect your credit score from unnecessary drops, consider the following practices:

Avoid applying for multiple credit cards or loans within a short period, as each application can impact your score negatively. Be cautious about personal information online to prevent identity theft and fraudulent activity. If you need to shop for the best rates, do so within a 14-day window to minimize your inquiries. Contact credit card companies before applying for new accounts to find out about soft or hard inquiries. If you suspect fraudulent activity, report it immediately to your credit card issuer and the credit bureaus.

Remember, maintaining a healthy credit rating requires careful management of both authorized and unauthorized credit activities. By understanding the differences between soft and hard inquiries and taking proactive steps to protect your credit, you can maintain a strong and positive credit score.

Trust me; I know what I'm talking about. With this knowledge, you can avoid unnecessary drops in your credit score and keep your financial health on track.