Keeping an eye on your credit score can help you learn how to improve it and you can use it to predict what types of interest rates you’ll qualify for.
Credit scores are super important, yet most of us don’t learn about them in school. As a result, many people are confused about how to obtain their credit score, which one to look at and how frequently to check it.
It’s worth noting that while your credit score is derived from information on your credit report, the two have very different rules governing their use and your access to them. One of the most significant differences is that, as a consumer, you have the right to free copies of your credit reports from each of the three major credit bureaus (Equifax, Experian, and TransUnion) every 12 months under the Fair Credit Reporting Act (FCRA). These free reports are available at AnnualCreditReport.com.
However, consumers are not entitled to free credit scores under this act. The law says that while you have the right to ask for your score, you’ll have to pay for it. The main reason behind getting your report for free but having to pay for your score is that the FCRA was enacted to correct abuses by the credit reporting agencies, not the credit scoring companies.
If you want to check your credit score, you may have to pay. However, there are many ways to do it for free. In fact, you may even have free access to your score already.
Ways to check your credit score
Not sure how to access your credit score? Here are a few options you have:
While paying a reasonable price for your score is good, getting it for free is even better.
As credit scoring has become more widely known and talked about, many lenders have found that offering free scores is a great way to get and keep customers.
Several credit card issuers offer free monthly scores and reports if you’re a customer, and some offer them even if you aren’t. Examples of the latter are Capital One (CreditWise), Chase (Credit Journey) and Discover (Credit Scorecard). You can also get a free FICO score from Experian.
Some of these free options may provide you with reports from only one credit bureau — and may provide you with your VantageScore instead of your FICO score. For example, CreditWise uses your TransUnion report and Credit Journey uses Experian, both of which provide VantageScores. On the other hand, the Discover Credit Scorecard uses TransUnion and gives you your FICO score.
A relative newcomer to the scoring world (compared to FICO), VantageScore has proved to be a worthy addition. While there are a few key differences in how the scores are calculated, both give consumers a good idea of where they stand in the credit world. And knowing where you stand is half the battle.
Yet another resource for free FICO scores is the FICO Score Open Access program, which allows certain lenders’ customers to view their scores and learn about the factors affecting them. Participants include more than 200 banks, credit card issuers, auto lenders and mortgage lenders.
And the folks at VantageScore are trying hard to catch up with FICO’s sales volume. So they offer you a free score through a number of websites and credit card products.
If you need your score because you’re in the market for a mortgage, auto loan or new credit card, you can purchase your FICO score (the one most lenders use when making lending decisions).
You can buy your FICO score directly from myFICO via its Advanced and Premium tiers (though there’s also a free tier that includes your FICO score). There are also many services that offer credit monitoring for a monthly fee; these will typically give you your score and updated reports regularly.
How to understand credit scores
A credit score is simply a numeric score that rates how much of a risk you pose to lenders. When you apply for new credit, lenders can review your credit report and credit score to gauge how creditworthy you are, which helps them determine their risk level.
If you have a high credit score, the lender will see you as less likely to default on your loan and may choose to offer you lower interest rates and better terms. If your credit score signals you’re risky, you’ll get a higher interest rate to help offset the risk.
And when you apply to rent an apartment, for a new insurance policy or to set up utilities, the landlord or agency might check your score to determine how reliable you are.
What impacts your credit score?
In order to understand how to maintain a high credit score, here are a few factors that may affect it:
- Payment history: A solid history of on-time payments helps boost your credit score, while late payments hurt it.
- Outstanding balances: Your credit utilization ratio is how much of your total available credit you’re using. By paying off your outstanding balances, you lower this ratio, which helps your credit score.
- Length of credit history: The longer your credit history is, the better it is. If possible, try to keep your oldest credit accounts open.
- Applications for new credit accounts: Hard inquiries can temporarily lower your credit score, but it will bounce back over time.
- Types of credit accounts(mortgages, car loans, credit cards): Lenders like to see that you have experience managing multiple types of credit at the same time.
How often should you check your credit score?
You don’t need to obsess about your score. However, if you’re planning a major credit purchase in the future, you can check your score three to six months before you walk into the finance manager’s office. This will allow you to shop with confidence by giving you time to correct any errors on your credit report that may be lowering your score or take some positive actions like paying down balances to improve your score.
Does checking your credit score lower it?
Checking your own credit score results in a soft inquiry and does not affect your score. In contrast, a hard inquiry happens when you apply for a loan or credit card and a lender checks your credit score. As noted above, hard inquiries can lower your score, but only up to five points or less.
Keeping a close eye on your credit score gives you an idea of how lenders perceive you and what types of loans and interest rates you may qualify for. If you notice your score dropping, you can always review your credit report to see what recent activity hurt it and to get an idea of how you can improve it.