Does pulling your credit report hurt your score?

Credit report ladderCredit reports and credit scores are generated by three credit reporting agencies, Equifax, Experian, and TransUnion. Consumer credit reports contain personal and financial information about you, including your name, your past and present addresses, phone number, Social Security number, date of birth, current and past employers, and companies who have issued you credit (including credit cards, charge cards, car loans, mortgages, student loans, home equity loans, etc.), including details about your credit payment history. Credit reporting agencies also compile information derived from state and county court records. Public record information includes foreclosures, bankruptcies, wage attachments, law suits, liens, and judgments. Information on overdue debt from collection agencies is also contained on credit reports.

Each credit agency creates a separate credit report and credit score for Americans. However, most of the information on each report will be identical or extremely similar. The goal of the credit agencies is to supply creditors with timely and reliable financial information about credit consumers. The credit reporting agencies do not determine whether an individual qualifies for credit or not. Credit reporting agencies simply collect information on individual’s credit history and behaviors and then deliver that information (for a fee) to creditors and lenders.

What does a credit score mean?

Using a complex formula based on many factors, a credit score is a three digit number symbolizing an individual's creditworthiness. The score is determined by each of the three major credit rating agencies. Your credit score is dependent on factors like your outstanding total debt, bill paying history, as well as the number and types of credit accounts you have and how long you have had them. A credit score is a statistical calculation that reflects a consumer's credit worthiness. In short, the credit score estimates the likely a consumer will pay his or her debt obligations. Credit scores can range between 300 and 850.

A credit score in the 300s or 400s indicates a high credit risk, a score in the mid-600s to low 700s indicates a good credit risk, and a credit score in the mid- to high 700s or in the 800s is regarded as an excellent credit risk. People with high credit scores get the lowest interest rates for a mortgage, loan, or credit card.

To qualify for a mortgage at a good interest rate and with advantageous terms, you'll want your credit score to be no less than 620.

The average credit score in America is approximately 678.

It's important to remember that different lenders and creditors give different weight to these scores.

What is the credit score range?

Here's how credit scores are generally perceived by lenders and creditors:
Excellent Over 750
Very Good 720 to 750
Acceptable (Average) 660 to 719
Uncertain 620 to 659
High risk Less than 619

Having a good to excellent credit score means lower interest rates and better terms for mortgages, installment loans, and credit cards.

How is my credit score calculated?

Credit score pie chartYour payment history is approximately 35% of a FICO credit score. This is the most important category to fix your credit score. Pay your monthly bills by the due date. Do not miss a payment or be late. If you have missed payments, get current with the lender and remain current. Your score increases when you pay your bills on time.

Balance due on credit accounts determines about 30% of a FICO credit score. This category is a relationship between how much is owed and how much can be borrowed from the lender. For example, let's say you have a credit card with a $5,000 limit and there is $4,999 owed to that credit card company. Not too much leeway. If all of your accounts are "maxed out", your credit score will be negatively affected. Try to keep balances as low as possible. High outstanding credit card debt will adversely affect your credit score. Pay down and maintain credit balances at 50% or less of the available credit limit. Call your credit card companies and ask them for an increase on the credit line. Your credit balances will appear to be lower due to the higher credit limit. Paying off debt can actually hurt your credit score. Reduce balances on all accounts before paying off debt.

Credit history accounts for approximately 15% of your credit score. Length does matter. Having a long credit history benefits the credit score. So do not close unused credit cards or accounts. Old credit accounts, even those you have not used for some time can actually help your score.

Credit combination can potentially determine 10% of a FICO score. Do you only have credit cards? Or do you have a school loan, car payment, and possibly an installment loan. The scoring system takes into consideration the total number of accounts you have.

Be careful in adding any new credit because it can determine 10% of a FICO score. Adding new credit accounts in a short time period represents greater risk in the scoring model, especially for people who do not have a lengthy credit history.

How many recent inquiries you have also falls in this category. An inquiry takes place when a lender requests your credit report or score from a credit bureau. Credit inquiries will remain on your credit report for two years, although the scoring equation only uses inquiries from the last 12 months. Not all inquiries are considered a credit risk. Application a job, auto pre-approval or rental application does not adversely affect your credit score. Installment loans or credit card inquiries will impact the score.

Steps to fixing credit fast

Contact your creditors who have late payments your credit report and politely ask them to remove the late payments. Some creditors may actually comply because they want your business.

Pay off any collection accounts and judgments (if any). Failing to pay creditors seriously impacts your credit score. Pay off or catch up on all delinquent debt.

Seek out a consolidation loan as a last resort. Again, pay off past due debt first.

Frequently Asked Questions About Credit Report and Credit Scores

What is the difference between a credit report and a credit score?

A credit report is a detailed record of your financial and personal history. For example, a car loan with the monthly payment will appear on your credit report, along with your payment history.

  • Your credit report is likely to include:
  • your date of birth
  • current residence
  • previous addresses,
  • employer,
  • public record information from state and county courts,
  • bankruptcies (if applicable)
  • collection information (if applicable)

A credit score is a three digit number that "scores" your credit report/history. Credit scores range from 300 to 850

Do soft inquiries affect your credit score?

There are two types of credit inquiries made to your credit report: “soft” inquiries and “hard” inquiries. “Soft” inquiries include your own requests for your credit history, inquiries made by your current creditors who wish to perform a review of your credit (also known as “account monitoring”), inquiries by companies extending you pre-approved offers for credit cards. “Soft” inquires are not visible to potential creditors.

“Hard” inquiries occur when you have applied for credit such as a new loan or credit card. Hard inquiries may remain on a credit report for 24 months. While “hard” inquiries do impact credit scores, “soft” inquiries do not.

How much do credit inquiries affect your credit score?

According to the Fair Isaac Corporation (FICO) . . .

For most people, one additional credit inquiry will take less than five points off their FICO Scores. For perspective, the full range for FICO Scores is 300-850. Inquiries can have a greater impact if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk. Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports. While inquiries often can play a part in assessing risk, they play a minor part. Much more important factors for your scores are how timely you pay your bills and your overall debt burden as indicated on your credit report. SOURCE: MyFico

Does the annual credit report include fico score?

Unfortunately, the free credit reports do not include credit scores.

Does checking your own credit report affect your credit score?

No, requesting your credit report will not hurt your credit score. Checking your own credit report is not an inquiry about new credit, so it has no effect on your score. In fact, reviewing your credit report regularly can help you to ensure that the information the credit reporting companies share with lenders is accurate and up-to-date. SOURCE: Consumer Finance Protection Bureau

Get a free credit report and credit score if your loan was rejected

If a lender rejects your credit application based on your credit report, the lender is required to provide you the numerical credit score it used in denying you credit and the key factors that affected your score, provided you request the information within 60 days. Your have the right to get a free copy of your credit report from the credit reporting company that provided the lender with the credit report within 60 days of your credit denial.