How to Monitor Your Credit Without Hurting Your Credit Score
Keeping an eye on your credit score can help you better understand what financial actions directly affect your credit, but will it decrease your credit score?Image source: Getty Images.
When was the last time you checked your credit? If it’s been longer than a few months, you might want to consider giving it a peek. If it’s been longer than a year, it’s time to change the way you monitor your credit.
Keeping an eye on your credit score helps you understand exactly how your financial actions affect your credit. It also allows you to respond to any sudden drops in your score and know when you’ve achieved excellent credit and might qualify for better interest rates or credit card offers. Ultimately, understanding how your credit score moves over time gives you control of your financial well-being. But it’s important to make sure you keep track of your credit score without harming it.
Hard and soft inquiries and how they affect your credit
Credit inquiries, or requests for your credit report information, are classified under soft and hard inquiries. A soft inquiry is any inquiry where your credit is not being reviewed by a potential lender. This can happen when you check your own credit score. Don’t worry -- soft inquiries do not hurt your credit score, so check away!
In contrast, a hard inquiry is when your credit is being reviewed because you’ve applied for credit with a potential lender. Hard inquiries make up a small portion of your overall credit score, and they tend to have a minimal, temporary effect. However, if you have a lot of them in a short period of time, it may signal that you are a riskier borrower resulting in a lower credit score.
Understanding your different credit scores
There are two primary credit scoring models that lenders use to determine your risk. They are:
- FICO® Score
- VantageScore
Even though each model uses the same credit reports, they weigh the information differently. This means that some consumers may see a significant difference between their two scores. The score that is used will depend on the individual lender, but the FICO® Score is more widely used. However, the VantageScore is typically used for most free credit scores you’ll find online.
There are three major credit reporting bureaus, or companies that collect consumer data and build credit reports.These credit reports, which are records of your credit history, are then used by companies like FICO and Vantage to turn your credit history into a score. The three main bureaus are:
- Equifax
- Experian
- TransUnion
Your credit report from each bureau will vary slightly because some lenders may only report to one while others may report to all three bureaus. This means you will have three different FICO® Scores, and the score used will depend on which credit bureau the lender pulls your report from. However, there shouldn’t be significant variance among these scores.
Credit score monitoring services
There are various credit score monitoring services that are easily accessible. You are entitled to one free credit report each year from each of the major credit bureaus thanks to a 2003 amendment to the Fair Credit Reporting Act (FCRA) -- The Fair and Accurate Credit Transactions Act. These free annual reports can be ordered from AnnualCreditReport.com. However, it’s important to monitor your credit score more than once per year.
Continuous monitoring of your credit score will allow you to notice any errors immediately and dispute them in a timely manner. It will also give you a better understanding of how your financial behavior affects your credit score in real time, giving you the ability to work on improving your score. As your score increases, you will know when it is high enough to qualify for lower interest rates and better lending offers.
MyFICO.com offers a paid service that allows you to monitor your credit score from different credit bureaus on a monthly or quarterly basis. You can receive reports from one or all three bureaus and enjoy additional features like identity theft monitoring and 24/7 fraud resolution depending on which monthly subscription you choose.
Experian also offers a paid credit monitoring service for a monthly fee. They will send you emails each time your credit score changes, along with an explanation so you can better understand your score.
Credit cards that help you monitor your credit score
Your credit card may already offer a free credit score monitoring service. This feature is common for credit cards designed to help build your credit or cards that are specifically for people with bad credit. However, a number of major credit card issuers are now providing this service to all of their customers.
Each credit monitoring program has its own unique advantages. The list of issuers that offer credit monitoring on all or most of their credit cards includes American Express, which has MyCredit Guide, Chase, which has Credit Journey, and Capital One, which has CreditWise. Barclaycard US also offers free FICO® Scores and email alerts, and Citibank gives cardholders monthly updates.
If you would like to avoid monthly fees but stay on top of monitoring your credit, consider combining the free credit monitoring services from your credit card with a comprehensive annual report from AnnualCreditReport.com. You can also give the credit monitoring services from MyFICO.com and Experian a try using their free trial. Whichever route you take, it’s important that you keep yourself in the loop when it comes to your credit score and the factors that influence it, and know that doing so won’t impact your credit score.