When it comes to making financial decisions, especially those related to mortgages, credit scores play a vital role.
But if you check on your own credit report does that cause a problem?
There is a common misconception that checking your credit report can lower your credit score. In this article, we will debunk this myth and provide you with valuable information and tips for understanding and managing your credit score effectively.
Understanding Credit Scores
Credit scores are numerical representations of your creditworthiness.
Lenders use them to help assess the risk associated with lending you money. In the UK, credit scores are calculated by credit reference agencies, taking into account various factors such as payment history, credit utilisation, length of credit history, and types of credit accounts held.
Regularly checking your own credit status is important for maintaining financial health, which is particularly important when it comes to securing a mortgage.
Lenders wont tell you what your credit score is. They each have their own way of formulating a score, based on your credit profile and information presented by the credit reference agencies (CRA). In fact, each CRA will have a different opinion of you, and a different overall score.
The Difference Between Hard and Soft Enquiries
When it comes to credit enquiries, it can be helpful to understand the difference between hard and soft enquiries.
These are the two types of searches that can be run on your credit profile.
Hard search
A hard enquiry occurs when a lender or financial institution pulls your credit report as part of a loan application process. Multiple hard enquiries, from different companies, within a short period can often lower your credit score.
The impact of hard enquiries on your credit score is temporary and diminishes over time.
Learn more: What is a hard credit search?
Soft search
On the other hand, checking your own credit score is considered a soft enquiry and does not impact your credit score negatively. It is important to note that only hard enquiries initiated by you, such as applying for credit, can affect your credit status.
Soft enquiries don’t have an impact on your credit score because you’re not officially applying for credit.
Examples of a soft search
- When you check your own credit score
- When an employer or landlord runs a credit check on you
- When a lender runs a credit check to prequalify you (DIP)
Learn more: What is a soft credit search?
The Benefits of Regularly Checking Your Credit Score
Regularly checking your credit profile brings several benefits.
Firstly, it allows you to detect any potential instances of identity theft or fraudulent activity early on. By reviewing your credit report regularly, you can ensure that all the information it contains is accurate and up to date.
Inaccuracies or errors on your credit report can adversely affect your creditworthiness and hinder your ability to secure favourable mortgage terms. Moreover, being aware of your credit status enables you to better prepare and understand your eligibility for various financial products.
How to Check Your Credit Score
Checking your credit score is a straightforward process and there’s a few ways to do it.
Here is a step-by-step guide to help you:
- Start by choosing a reputable credit reference agency, such as Experian, Equifax, or TransUnion.
- Visit their website and sign up for an account.
- Provide the necessary personal information to verify your identity.
- Once your identity is confirmed, you will be able to access your credit report and credit score.
- Take advantage of the free resources and services offered by these agencies to gain valuable insights into your credit profile.
It’s important to note that there are different credit scoring models used by each of the agencies. To avoid confusion, make sure to compare the same types of credit scores when reviewing your credit report.
If you have the time, it’s a good idea to see what all 3 of these agencies hold on you. Alternatively, the checkmyfile service can check 4 agencies at once.
Learn more: Credit Report Guide
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Tips for Improving Your Credit Score
Improving your credit score is essential for securing better mortgage options and the best interest rates.
Here are some practical tips to help you enhance your creditworthiness:
- Make payments on time: Paying your bills and credit obligations promptly demonstrates responsible financial behaviour and positively impacts your credit score.
- Keep credit card balances low: Aim to keep your credit card balances well below the credit limits to maintain a healthy credit utilisation ratio.
- Avoid payday loans: Having a payday loan does affect getting a mortgage, and there’s likely to be fewer lenders to approach.
- Avoid unnecessary hard enquiries: Before applying for credit, research and compare different options to minimise the number of hard enquiries on your credit report.
- Check your financial associations: These will show up on your report. You should remove any outdated financial associations.
- Monitor your credit report: Sign up for one of the services to receive regular updates, and fix errors quickly.
How Often Can You Check Your Own Credit Score?
You can check your credit score as often as you want without affecting your credit.
Always check it before making any applications for mortgages, credit or loans. By checking a few months in advance, you have enough time to address anything that could be lowering your score.
It’s a good idea to check your credit report at least once a year.
Checking your own credit score is a good habit to acquire, and does not lower your score.
By regularly reviewing your own credit profile you can see how changes can improve your status, and it helps to spot errors at an early stage.
