Melinda OppermanCredit and Debt
The Importance Of Checking Your Credit Score On A Regular Basis
The Importance Of Checking Your Credit Score On A Regular BasisYou can check your credit report for free once per year at www.annualcreditreport.com, and we urge everyone to do so. But checking your report isn’t the same as checking your score, and that leaves some questions. Should you check your credit score? How often? How and which score to check?
For starters it’s important to check your credit score on a regular basis because that’s how lenders evaluate your creditworthiness. Think of it like this; your credit report is your homework, and your credit score is your grade.
You might pull your own credit reports, check them for errors, and ensure there are no signs of identity theft or fraud. But simply looking at your credit report might not give you any idea of whether your credit is actually “good” or not. We always urge people to ensure that their credit reports are accurate and reflect positively on them—the score is how you know your credit is a positive reflection on you.
What does it cost?
The catch to checking your credit score is that it isn’t free. Depending on where you live and which score you check, you’ll likely have to pay to see that information.
This is where it’s important to know the differences between FICO and VantageScores. FICO scores are the standard that most lenders use to evaluate your creditworthiness. If you want to know what scores lenders will see when you apply for a loan, then you want to see your FICO score. But they’re not cheap—currently it costs around $20 per score, so getting your score for all three credit bureaus (TransUnion, Equifax, and Experian) would cost around $60.
VantageScores are an alternative designed by the bureaus themselves. They cost about half of what a FICO score costs. When you go to www.annualcreditreport.com and get a free credit report, the bureaus will offer to sell you your score as well—this is a VantageScore they’re offering. And we usually don’t recommend people pay the extra for a score when getting their free annual report. This is nothing against VantageScore—its just that checking your report and score aren’t synonymous; usually you only want the report, and should only pay for the score when the time is right.
So when should I buy a credit score?
If you’re simply trying to ensure your credit report is accurate, stick with the report and don’t worry about the score. If you’re investigating possible identity theft, or recovering after being a victim, you should also stick to the report and don’t pay for a score. If accuracy is what you’re trying to ensure, don’t waste money on a score.
But if you’ve already verified that your report is accurate and up to date, and you want to evaluate how good your credit really is, you can get a score to see where you stand. It’s important to do this check well in advance of taking out a major loan. At least a few months before filling out that loan application, check your score, and if it’s not as good as it needs to be, take steps to improve your score—pay off overdue charges, pay down balances, make sure everything is accurate and up to date. It may take the creditors a few billing cycles to report the new balances and payments to the bureaus, so you need as much advance time as you can get to see how much your score improves.
See our article on “5 Actions You Can Take to Improve Your Credit Score” for more advice on improving scores over time.
Another thing scores have a big impact on is your home or auto insurance rates, this varies by state guidelines depending on where you live. So in addition to borrowing or working to improve your credit, you might want to buy a score in advance of changing insurance companies or applying for a new insurance policy. A few states have taken pre-emptive measures to guard consumers from being affected by credit-based insurance scores.
Which score should I buy?
VantageScores are cheaper, so you’ll probably be tempted to check those first. They’re certainly worth checking if you want to see whether your credit is “good”, how much it has improved, etc., but they aren’t as useful to check prior to borrowing. FICO claims their score is used by 90% of top lenders, so if you’re preparing to get a loan, you probably want to see the same score your lenders see, which is you FICO score.
What about free credit scores?
Here’s where things can get tricky. If you can genuinely get free access to your credit score, then there’s no reason not to check it. But a lot of “free” credit reports aren’t free at all, so you have to be careful.
Some credit card lenders offer a free report & score to their customers. This is the best way to get a free score. Your lenders are buying it on your behalf and giving it to you as a perk of being their customer. No tricks or gimmicks, just a free score. See CFPB’s list of companies that offer free credit scores to their customers.
Then there are some services we talked about in our article “The Real Path to a Free Credit Score”, including Quizzle, CreditKarma, and CreditSesame. These services give you a free VantageScore in exchange for signing up and sharing data with them. They use your info to deliver targeted ads to you. If you don’t have any privacy concerns with this kind of advertising model, then this is a good way to get a free credit score.
Another model for free credit scores isn’t really free. Some companies offer a free credit score as an incentive to sign up for a monthly credit monitoring service. You do get your score for free up front, but quickly you’ll start seeing monthly charges that can be hard to cancel. There are good reasons for some people to buy credit monitoring, but we want people to enter this agreement willingly and with clear eyes, not tricked into it by the offer of a free credit score.
Finally, you are entitled by law to a free credit report & score if you are denied credit. We wrote about this law shortly after the policy was changed in our post “Get a Free Credit Score if You Are Denied for Credit”.
Where should I go to get my score?
If you’re not sure you’ll be able to make sense of your credit report & score, you can get that through a Credit Report Review, and have a certified financial coach review it with you. That’s the best option if you don’t want to have to do any heavy lifting.
If you’ve got a good handle on how credit works and just want to see your score ahead of applying for a loan, stick with myFICO.com, or see if your credit card company offers a free FICO score.
And if you want the less expensive VantageScore, VantageScore.com is the place to start.
Finally, if you plan to get a free score through a web site membership or subscription, do your homework first and ensure you are doing business with a trustworthy company who won’t misuse your personal data or sign you up for a subscription charge without your explicit consent.
Remember, you don’t have to navigate these waters alone. If you need help understanding your credit, paying down debt, avoiding foreclosure, etc., then call us today to talk to a certified financial coach.
About The Author
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over two decades of experience in the industry.
FAQs
What is the importance of monitoring your credit score on a regular basis? ›
Highlights: Checking your credit history and credit scores can help you better understand your current credit position. Regularly checking your credit reports can help you be more aware of what lenders may see. Checking your credit reports can also help you detect any inaccurate or incomplete information.
What is the importance of your credit score answers? ›Reasons Why Your Credit Score Is Important
With a good score, lenders will extend credit to you at a lower rate, reducing your costs for a number of items such as mortgages and auto loans. You'll also be in a position to qualify for the best credit cards.
- Stay Proactive Against Fraud. Checking your credit file can help you spot potential identity theft or fraud early. ...
- Spot and Dispute Errors. Not all errors suggest fraud. ...
- Make Sure Payments Are Being Reported as Agreed. ...
- Take Action to Improve Your Credit.
Errors on your credit reports can negatively affect your credit scores and ability to get a loan. Reviewing your reports on a regular basis can also help you monitor for things like identity theft and fraud. Sometimes your information isn't reported to all three nationwide credit reporting companies.
What is the importance of continuous credit monitoring? ›A credit monitoring system alerts you about your credit score changes. Hence, this will help you to give a clear idea of how your financial transactions affect your credit score. This will help you to take better financial decisions in future.
Why is it important to check your credit report how often? ›You should check your credit report regularly―annually at a minimum—to help protect yourself and review where your credit accounts stand. It's important to monitor your credit report for changes you didn't anticipate so you can dispute entries you believe are wrong or detect fraud early.
What is the most important part of your credit score? ›Payment history — whether you pay on time or late — is the most important factor of your credit score making up a whopping 35% of your score.
What is the most important credit score? ›As noted earlier, the credit score that matters the most is your FICO Score, since it's used in the vast majority of lending decisions.
What's the most important aspect of your credit score? ›Payment history accounts for about 35% of your FICO® Score, making it the most influential factor in your scores.
What are the 4 main reasons credit is important? ›- Better approval rates. If you have a good credit score, you're more likely to be approved for credit products, like a credit card or loan. ...
- Lower interest rates. The higher your credit score, the lower interest rates you'll qualify for. ...
- Better terms. ...
- Robust benefits.
What are the 7 reasons to check your credit report? ›
- You're preparing to buy a house or a car. ...
- A new apartment is in your future. ...
- You're planning a major purchase. ...
- You're hoping to refinance. ...
- You've seen something suspicious.
Lenders may use your credit report information to decide whether you can get a loan and the terms you get for a loan (for example, the interest rate they will charge you). Insurance companies may use the information to decide whether you can get insurance and to set the rates you will pay.
What are the two most important things to look for in your credit report? ›Of these factors, payment history and credit utilization are the most important information. Together, they make up more than 60% of the impact on your credit scores.
What are the potential benefits to credit monitoring? ›Poor financial planning can adversely affect your credit score and ruin your chances of getting better loans in the future. Credit monitoring alerts you about the changes in your credit score. This helps you in understanding how your financial activities are impacting your credit score.
What are the goals of credit monitoring? ›Benefits of credit monitoring
It provides individuals with reports if any changes occur on their history, with also provides your score and report. With credit monitoring, the possibility of credit fraud and identity theft is curtailed due to monitoring.
Through continuous monitoring and 24/7 risk reviews, lenders can obtain up-to-the moment views of their client's financial position, allowing them to quickly make decisions on new credit requests and proactively offer unique solutions in anticipation of the borrower's needs.
Is it important to have credit check? ›One of the main reasons to perform a credit check is to prevent default. By mapping out the company's financial situation, you can determine whether it is responsible to do business with this company. Based on this, you can decide not to give delivery on account, for example, but to have payment in advance.
Why is it important to do credit review? ›The primary purpose of a credit review in the eyes of creditors is three-fold: 1) to determine if the potential borrower is a good credit risk; 2) to examine a prospective borrower's credit history, and 3) to reveal potentially negative data.
Should you check your credit score daily? ›The Consumer Financial Protection Bureau suggests checking your credit reports once a year, at a minimum. Credit expert John Ulzheimer suggests a cadence of once a month. Until the end of 2023, you can get your reports for free every week from the three major credit bureaus by using AnnualCreditReport.com.
What are the three important credit scores? ›The information in each of your Credit Reports from the three credit bureaus can be different. This is why it's important to review your Experian, Equifax®, and TransUnion® Credit Reports and FICO Scores.
What is the biggest advantage to using credit scores? ›
Lower interest rates
In most cases, lenders reserve their lowest interest rates for applicants with the highest credit scores. Getting a lower interest rate on a loan has the potential to save you hundreds and perhaps even thousands of dollars depending on the situation.
What is a good credit score? If your FICO score is over 670, you have good credit. There are many benefits of good credit, including access to better credit cards and lower interest rates, so it's important to understand how your credit habits might be helping or hurting your credit score.
What is the best way to check credit score? ›- Check your credit card, financial institution or loan statement. ...
- Purchase credit scores directly from one of the three major credit bureaus or other provider, such as FICO.
- Use a credit score service or free credit scoring site.
- Payment history – 35 percent of your FICO score. ...
- The amount you owe – 30 percent of your credit score. ...
- Length of your credit history – 15 percent of your credit score. ...
- Mix of credit in use – 10 percent of your credit score. ...
- New credit – 10 percent of your FICO score.
Your credit score helps lenders determine your dependability and if you're likely to be able to pay a loan back. Your score not only impacts whether your loan application is approved, it also affects the interest rates and terms you receive when shopping around with different lenders.
What are the 3 benefits of having a good credit score that are most important to you and explain why? ›If you have a good credit score, you have a much better chance of qualifying for the best interest rates, which means you'll pay lower finance charges on credit card balances and loans. The less you pay in interest, the sooner you'll pay off the debt, and the more money you'll have for other expenses.
What are 5 key things are considered when determining credit worthiness? ›What are the 5 Cs of credit? Lenders score your loan application by these 5 Cs—Capacity, Capital, Collateral, Conditions and Character. Learn what they are so you can improve your eligibility when you present yourself to lenders.
What are 4 tips for a credit score? ›- Pay down your revolving credit balances. If you have the funds to pay more than your minimum payment each month, you should do so. ...
- Increase your credit limit. ...
- Check your credit report for errors. ...
- Ask to have negative entries that are paid off removed from your credit report.
Your race, color, religion, national origin, sex and marital status. US law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act.
What are 2 advantages of a good credit score? ›- You'll have an easier time renting an apartment. ...
- You'll get the best rates on car and homeowners insurance. ...
- It's cheaper to borrow money. ...
- You'll be better prepared for the future. ...
- You can access perks and enjoy the best rewards.
What two things have the most impact on a person's credit score? ›
The most important factor of your FICO® Score☉ , used by 90% of top lenders, is your payment history, or how you've managed your credit accounts. Close behind is the amounts owed—and more specifically how much of your available credit you're using—on your credit accounts. The three other factors carry less weight.
How often should you check your credit score? ›The CFPB recommends you review your credit reports at least once a year. However, reviewing your credit history and open credit accounts more frequently can give you a more accurate picture of your financial standing, so you may want to consider checking one of your free credit reports every four months.
What are two things you can do to raise your credit score? ›- Review your credit reports. ...
- Pay on time. ...
- Keep your credit utilization rate low. ...
- Limit applying for new accounts. ...
- Keep old accounts open.
Credit monitoring services can provide you with early notice of potential fraud on your credit report, so you can take steps to protect your personal information. While these services can't actually prevent identity theft, they can keep you informed so you can take action if you notice something is wrong.
Why is it important to regularly monitor progress towards financial management objectives? ›An essential component of financial management is a regular financial review of activity to identify errors, anomalies, potential compliance issues, and significant budget variances.
What is the importance of monitoring and controlling in credit and collection? ›MONITORING AND CONTROL
Provides protection against losses. Enables issues to be tackled earlier creating more options to preserve the business and relationship via distressed debt management. Ensures compliance with the terms of the credit sanction.
The primary purpose of a credit review in the eyes of creditors is three-fold: 1) to determine if the potential borrower is a good credit risk; 2) to examine a prospective borrower's credit history, and 3) to reveal potentially negative data.
What are the advantages of good credit management? ›- Determining the customer's credit rating in advance.
- Frequently scanning and monitoring customers for credit risks.
- Maintaining customer relations.
- Detecting late payments in advance.
- Detecting complaints in due time.
- Improving the DSO.
- Preventing any bad debt from arising.
A customer credit check is an action that you, a lender, bank, insurance company or other service provider should perform when they need to assess the credit risk of a customer company.
Which credit score is most important? ›FICO® Scores☉ are used by 90% of top lenders, but even so, there's no single credit score or scoring system that's most important. In a very real way, the score that matters most is the one used by the lender willing to offer you the best lending terms.