Having poor credit can be financially paralyzing. But constantly checking your credit score or frequently pulling your credit report won’t necessarily fix your binding situation. To fully understand how often you should be checking your credit report, you should explore the answers to these commonly asked questions.
What is a credit report?
A credit report is a detailed report of your credit history. This document is prepared by a credit bureau and is used by lenders to determine your creditworthiness. Your creditworthiness is based on several factors including:
- Personal information
- Employment history
- Summary of credit history
- Account information
- Inquiries of your credit history
- Any accounts turned to a credit agency
Why should you be aware of your credit report?
Being aware of your credit report is necessary for several reasons, the most important being:
- Identity theft: With identity theft on the rise, you’ll be able to note any identity errors or reports of fraud on your report.
- Financial standing: If you aren’t aware you have poor credit, you’ll never begin to repair it.
- Errors: It’s not uncommon for reports to have errors that can damage your financial standing and credit worthiness.
What is a credit score?
When using credit, you are essentially borrowing money that you don’t have and promising to pay back the borrowed amount within a specific time period. Your credit score is a three-digit number that determines the likelihood of you actually paying back the money you owe. Your credit score is a number determined by the information provided in your credit report.
Though credit bureaus have different evaluation methods, the most important factors a credit lender looks at is your payment history, any current debts you may have, the length of your credit history, your credit type and how frequently you apply for new credit. Your FICO score – or Fair Isaacs Corporation score – is based on a scoring range of 300 to 850, with the lowest score representing the high risk lenders take when loaning you money and the highest score representing the lowest risk.
To fully conceptualize the hazards and benefits of checking your credit score, it’s important to understand the different two types of credit checks:
- Hard Inquiries: These checks are initiated when a large financial institution pulls your information. Hard inquiries are typically made when assessing you for a lending decision like a mortgage loan or credit card. Every hard inquiry knocks a few points off your credit score.
- Soft Inquiries: Typically made as part of a background check – like a pre-approved offer or job hiring process – soft inquiries do not affect your credit score, no matter how many times you pull your information.
How often should you check your credit report?
You should be checking your credit report at least once a year. However, with several credit bureaus offering free annual credit reports, it can be challenging to sort through the different data. Consider choosing one reliable bureau to gauge your creditworthiness and financial health from.
How often should you check your credit score?
It’s to your advantage to keep a close eye on your credit score. While checking your score annually is advisable, monthly monitoring of your score is recommended if you apply to any of the following:
- If you plan to apply for credit, like a car loan or mortgage
- If you are working towards building or rebuilding your credit
- If you think you’re a victim of identity theft
- If you’re recently divorced
- If you’re planning to undergo the employment process.
What is the bottom line?
The bottom line is this: there is no one, true credit score. Each credit bureau has a different method of scoring your credit and each report is gathered in a different way. However, it is important to be aware of your credit report and your credit score so that you can be aware of your financial health. If you don’t check your score monthly, check it at least once or twice a month.
If would like to learn more about ways to improve your credit score, visit our credit repair tips and trips page.