Credit Cards

Credit Score: Understanding Your Credit Score

Your credit is basic to your finances, and understanding it is important for your financial education. One of the myths you hear about when talking about credit is that checking your own score can damage it. This myth grew up because when some people check your credit score, it really does damage your score — even if you don’t end up being approved for your loan. This is because there is a difference between what is called a hard inquiry and a soft inquiry.


What is Hard Credit Inquiry?

This is the kind of credit inquiry that does affect your credit score. When you apply for credit, you are requesting that the company check your credit so that you can get a loan. As a result, your credit score is lowered because applying for credit is seen as a adding risk to your financial profile. If you apply for a lot of different lines of credit in a short period of time, all those hard inquiries raise red flags.

Soft Credit Inquiry

On the other hand, a soft credit inquiry is not nearly so damaging to your credit score. In fact, a soft inquiry does not hurt your credit score at all. This is an inquiry made by companies who are interested in seeing whether or not you might qualify for some offer. You did not ask for this inquiry, and you are not applying for credit, so these inquiries do not harm your score.

When you check your own score, it is seen as keeping tabs on your score for your own information. This is considered a soft inquiry. You can check your own score as often as you like, without damaging your credit score ( Related: What is a Good Credit Score).

Keeping Tabs on Your Credit Score

It is a good idea to have a general idea of your credit score. You can pay for your score, or you can visit CreditKarma.com for a free version of your TransUnion score. This can help you get an overall idea of where you stand. However, if you plan to apply for a major loan, such as a home loan or an auto loan, in the near future, it is a good idea to pay for a three-score report so that you can see where you stand with all three major credit bureaus. Check your credit report as well (you get a free report each year from each bureau at annualcreditreport.com) to make sure you can fix any errors before you apply.

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