Your credit score, commonly referred to as a FICO score, is determined by special formulas created by the three major credit bureaus. Each bureau has a slightly different method of calculation, with typical score ranging from 300 to 850. Does accessing a credit report increase your credit score? No. In reality, accessing a credit report can actually hurt the score under certain circumstances, and that's bad news.
When you apply for a loan, the lender does a "hard pull" on your credit report. Hard inquiries, or "hard pulls," are initiated when the lender requests a copy of your report to review along with your loan application. A hard pull dings your credit score by five points for six months. That doesn't sound like much, but if you apply to several lenders over a six-month period, it could be enough to affect your ability to get a competitive interest rate. Those inquiries may also mean you're overextending yourself as far as credit goes. Hard inquiries are notated on your report and are visible to you and others.
Your credit score affects more than getting a loan. The car insurance company looks at your credit score to set our rates. Potential employers look at the score before making hiring decisions. Your current lenders may review the scores to see how you're doing. A score that drops over time may be a sign you're in financial trouble. When you open a new bank account, the bank may look at your credit report. If you're shopping for a home, the mortgage company does a soft pull to pre-qualify you, and a hard pull when you actually apply. These soft inquiries don't have any affect on your score. Soft pulls are not visible to others.
Check Up On Yourself
Looking at your own credit report is considered a soft inquiry and won't raise or lower your scores. It's a good idea to keep track of what's being reported to catch any errors right from the get-go. You’re entitled to one free credit report each year or any time you've been denied a loan.
If you find yourself in the position where some of your accounts have been turned over to a collection agency, it's especially important to check your reports. Unethical collection agencies have been known to re-age accounts, change the type of account and the dates of payments. Some threaten to do a hard pull on your credit report as a means to get you to pay. If you receive a notice from a collection agency, you need to make sure the debt is still valid. Ask to have the agency validate the debt, before you acknowledge that it's yours. If the debt is past the statue of limitations, even a verbal agreement you owe the money starts the clock ticking again.
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