Why You Should Check Your Credit Score Early and Often
When you want to borrow money from banks, credit card companies and other lenders, they'll commonly check your credit score to help gauge how likely you are to repay them. Having a higher score is advantageous. Banks could give you a better interest rate on a loan, for instance.
Because these three-digit numbers can have such a big impact on your finances, checking your credit score is a good idea, especially before applying for a new credit card, mortgage or auto loan.
You may be able to access your credit score for free through your bank, credit card issuer and credit-monitoring sites. Does checking your credit score lower it? Not at all if you're checking it yourself, because this is considered a soft inquiry. When it comes to keeping up on your own credit status, there's no downside to staying in the know.
How scores are calculated
Credit scores are largely based on information lenders provide to credit reporting agencies like Experian, Equifax and TransUnion. Variables that impact your score include your payment history, your mix of credit, how long you've used credit and how much you're using of your available revolving credit from credit cards and lines of credit.
Scoring models may also factor in the credit checks lenders make when you apply for new credit. These hard inquiries do have a slight negative impact on your score, because they indicate that you're looking for credit. However, one or two inquiries won't have a big impact—just avoid making too many credit inquiries at once. That's why you should start building good credit scores.
Monitor your credit
Checking your credit reports is critical because they have such a direct connection to your scores. Each year you're entitled to a free copy of your credit reports from Experian, Equifax and TransUnion that you can access through AnnualCreditReport.com. The credit reporting agencies may get information from different sources, so you should view reports from all three.
If you want to access your free reports more frequently, you're in luck. As part of an Equifax data breach settlement, all US consumers can get six free credit reports per year through 2026 by visiting the company's website. In addition, due to the COVID-19 crisis, all three credit reporting agencies are enabling consumers to access free weekly online reports through April 2021.
It's not just your credit files that can vary, however. In truth, you actually have more than one credit score. These scores are created from models of companies like FICO and VantageScore that use different scoring formulas.
While it's hard to determine which scores lenders will actually see, you can do your best to make sure the information those scores are based on is accurate. This is why it's so important to know your credit scores.
Scrutinize results and credit habits
When you review your credit reports, do a thorough check of all the information. Look for signs of errors or fraud that may include:
- Mistakes in personal data like your name, Social Security number or address
- Incorrect current balances
- Inaccurate information about late payments and missed payments
- Newly opened accounts you don't recognize
- Hard inquiries made without your permission
If you see a discrepancy, contact the bureau whose report you're viewing and the organization that reported the filing you suspect is incorrect. Provide documentation to assist both as they investigate the dispute.
There are two free tools you can place on your reports that could prevent fraudsters from opening unauthorized accounts. A 1-year fraud alert requires potential lenders to verify your identity before issuing credit in your name. A credit freeze blocks prospective lenders from accessing your credit report until you lift the freeze.
Meanwhile, there's one other good reason to check your credit score and credit reports—to find areas for improvement. Taking steps like paying bills on time and keeping credit card balances low could potentially improve your credit score and your overall financial well-being.
A few financial insights for your life
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.