Does checking your credit score lower it?

Your credit score indicates your creditworthiness to lenders, which means it affects the loans you may qualify for, the interest rate you’ll pay, what you can buy with credit, and perhaps even where you work and live.

That’s why monitoring and understanding your credit is one of the most important financial habits you can build. Checking your credit score regularly allows you to ensure the information in your report is correct so you can get credit when you need it, and gain valuable insight into how your behaviors are impacting your financial well-being.

You may have heard that checking your credit score will lower it, but that’s not the case. Read on to learn the difference between a hard and soft credit inquiry that lowers your score, as well as other common misconceptions about credit.

What is a credit score?

A credit score is a number ranging from 300 on the low end to 900 on the high end that companies and lenders use to predict how reliable and financially responsible you are. Your credit score can affect the loans you qualify for, the interest rate you pay, what you can buy, where you work, and where you live.

Your credit score is calculated by credit bureaus that transfer the information in your credit report. Your credit report is essentially a record of your financial behaviors and actions toward credit products such as credit cards, student loans, and bill payments.

You can get your credit report for free through the two credit bureaus in Canada, Equifax And TransUnion. You can also get your credit score at no cost from Equifax, however, getting your score from TransUnion will require a fee. Each credit bureau maintains its own credit reports and credit scores, but they shouldn’t vary much.

Does checking your credit score lower it?

Many Canadians worry that checking their credit score or requesting a copy of their credit report could negatively affect it. This is a myth. Your credit score will not be affected if you check it yourself, as this is considered a soft inquiry. However, a difficult investigation is a different story.

Difficult inquiries

A hard inquiry occurs when you apply for a loan or credit card and a potential lender reviews your credit history. This is usually done when applying for a mortgage, loan or credit card. Any time your credit experiences a hard inquiry, your score will drop by a few points. If it’s just one inquiry, the negative impact on your score will be minimal. However, if there are suddenly a large number of hard inquiries on your report, your score will suffer and creditors will wonder why you are applying to so many lenders at once.

Soft inquiries

In comparison, when you request a copy of your credit report or check your credit score, this is known as a soft inquiry. Simple inquiries do not affect credit scores They are not visible to potential lenders who may review your credit report. Other types of simple inquiries include companies sending you promotions for pre-approved credit cards, reviews of existing lending accounts by companies you already have an account with, and employers doing background checks.

Myths about credit scores

Besides checking your credit, it’s important to understand how your score may — or may not — be affected by other actions. If you’re trying to build your credit score, here are some common misconceptions that may be holding you back:

1. You can check your credit score for free only once a year

You can actually pull your credit report online for free from both credit bureaus in Canada (Equifax and TransUnion) whenever you want. However, credit bureaus update their information monthly, so there is no need to check it more frequently than that. You can also check your credit score and history through a third-party service, e.g Credit Karma or Burwellwith updates provided weekly.

2. Everyone has only one credit score

The two credit bureaus in Canada get their information from different sources. For example, some creditors report to one bureau but not another. This means that your credit reports from each may differ slightly. Additionally, Equifax and TransUnion use their own algorithms to calculate your credit score, so you may have a different score on each.

3. Spouses sharing credit reports

Credit scores are linked to personal information, including your Social Security number, so that your credit history remains separate from your partner’s, even after marriage. However, any joint accounts will appear on both partners’ credit reports.

4. Closing a credit card account will not affect your credit score

Closing a credit card affects your credit utilization – the percentage of total available credit that you are currently using. Credit utilization is one of the factors used to calculate your credit score. When you close a credit card, the available balance decreases, which means the percentage of your used available credit increases. If the increase is high enough, it will hurt your credit score because the unused credit limit of the closed card no longer provides balance in the relationship between your other credit factors. Of course, the variation in credit utilization ratio depends on whether or not there are any remaining credit card balances.

How to monitor and improve your credit score

If your credit report or score isn’t where you want it to be, the only way you can “fix” it is to rebuild it with a positive credit history.

Subtle negative information on your credit report can’t magically disappear; It exists until it falls off your credit report, which takes a long time About six years. In the meantime, you have to show your creditors that your financial habits have improved, which takes time. Here’s what you can do to get the ball rolling:

1. Review your credit report

It is important to review your credit report at least once a year from any credit bureau, or third-party service, e.g Credit Karma or BurwellOr your bank’s website or mobile application. Take a look at the report to see what was documented and whether the information is correct. At no charge, you can remove incorrect information by filing a dispute directly with the credit bureau.

2. Beware of credit repair services

Credit repair companies say they’ll repair your credit by removing negative information from your credit report, thus boosting your credit score — for an expensive, upfront fee. These companies often take advantage of the fact that many Canadians don’t know that you can’t remove accurate information from your credit report – even if it’s bad! You should be skeptical If any company says they can do it.

3. Work to pay off your debt

Work to pay off your existing debts by putting the most money toward paying off your unsecured debts first, such as payday loans, credit cards, or personal loans, as these tend to have the highest interest rates.

4. Make at least minimum payments by the due dates

Late payments negatively impact your credit score, so make sure you pay at least your minimum monthly payments for each debt you currently have. A history of consistently repaying debt can be a good starting point for building your credit score.

5. Create and follow a budget

It’s essential to stay on track with your finances to avoid missing payments, as this can lead to a lower credit score. There are many online budgeting tools and apps that can help you create a realistic spending plan, including Credit Canada’s free Budget Planner + Expense Tracker. Remember, the key to a successful budget is sticking to it!

6. Get a secured credit card

A secured credit card can help you build your credit score without paying interest. How it works is that you make an initial deposit that determines how much credit you will get. The bank or lender keeps this money in case you fail to make your payment. But keep in mind that credit should not be used to replace money you don’t have, so be responsible with it.

7. Contact Credit Canada

If you need help rebuilding your credit? Contact Credit Canada for personalized advice on improving your credit score. A certified credit counselor can provide advice that fits your specific situation, and their counseling services are completely free. They can also review your credit report and advise you on the best way to address your debt and increase your credit score.

Conclusion

Although there’s no instant solution to credit problems, there are ways to start building a positive credit history — and knowing that you can check your score without any impact is the first step! Understanding misconceptions about checking your credit report can help you proactively manage your credit score and make informed decisions to reach your financial goals.

It may take some time to see good financial behaviors reflected in your credit score, but when you see results and are able to qualify for a car loan, line of credit, or mortgage, you’ll know it was worth the effort!

For more advice on credit management, contact Credit Canada and book a free credit counseling or debt assessment session with one of our certified non-profit counselors. Call 1-800-267-2272 to book today or talk to us via live chat for a free consultation.