Surprising Truth- Why Checking Your Credit Score Can Actually Decrease It

Why Does Checking Your Credit Lower Your Score?

Understanding how credit scores work can be quite perplexing at times. One common question that often arises is why checking your credit can actually lower your score. This article aims to shed light on this topic and explain the reasons behind this seemingly counterintuitive phenomenon.

Hard Inquiries and Their Impact

The primary reason why checking your credit can lower your score is due to hard inquiries. A hard inquiry occurs when a lender accesses your credit report to evaluate your creditworthiness. This is typically done when you apply for a loan, credit card, or any other form of credit. Each hard inquiry can cause a temporary drop in your credit score.

Scoring Models and Hard Inquiries

Credit scoring models, such as the FICO and VantageScore, consider hard inquiries as a potential risk factor. The rationale behind this is that multiple hard inquiries within a short period of time may indicate that you are actively seeking new credit, which could be a sign of financial stress or potential default. As a result, scoring models penalize hard inquiries by lowering your credit score.

Frequency of Credit Checks

It’s important to note that the frequency of credit checks plays a crucial role in determining the impact on your score. If you frequently check your credit, especially within a short span of time, it may raise red flags for scoring models. However, if you space out your credit checks over a longer period, the impact on your score may be minimal.

Soft Inquiries and Their Difference

In contrast to hard inquiries, soft inquiries do not affect your credit score. Soft inquiries occur when you check your own credit report, apply for a pre-approved credit offer, or conduct a soft pull by a lender. These inquiries are generally considered less risky and do not trigger the same penalties as hard inquiries.

Monitoring Your Credit Score

While checking your credit can lower your score temporarily, it is still important to monitor your credit regularly. By doing so, you can identify any errors or discrepancies in your credit report and take appropriate actions to rectify them. Additionally, staying informed about your credit score can help you make better financial decisions and improve your overall creditworthiness.

Conclusion

In conclusion, checking your credit can lower your score due to hard inquiries, which are considered a potential risk factor by credit scoring models. However, it is crucial to understand the difference between hard and soft inquiries and the impact of frequency on your credit score. By monitoring your credit regularly and taking appropriate measures, you can maintain a healthy credit score and make informed financial decisions.