Having a good credit score is the key to being able to receive loans for vehicles, homes or personal loans without absurd interest rates. When a lender is considering approving you for a loan, the first thing they’re going to check is your credit score. The higher your credit score, the more likely you are to be approved for a loan with a better interest rate because lenders see you as a reliable and responsible borrower. Now ask yourself, do you know where your credit score stands currently? If you don’t, you should consider finding this out as knowing your credit score can help you become more informed and equipped to manage your finances responsibly. In this article, we’re going to give you 5 reasons to regularly check your credit score.
Why Check Your Credit Score Regularly?
1. It’s Easily Accessible & Quick
Today we live in a digital world where information like your credit score is easily accessible through a few clicks. There are two things you’ll want to check, your credit score and your credit report.
A credit score is a 3 digit number between 300-900 that represents your creditworthiness. The higher the number, the higher your creditworthiness and the more likely you are to be approved for a loan with a good interest rate. In Canada, you’re entitled to two free credit score checks per year through either Equifax or Transunion.
A credit report shows your borrowing history, active loans, payments and credit limits. Your credit activity which is shown on your credit report is a key factor in determining your credit score.
2. Checking Your Credit Score Doesn’t Affect Your Score
One of the most common misconceptions people have about credit scores is that by checking your credit you’re negatively affecting your credit score. While this can be the case in some situations, it can easily be avoided. There are two types of credit inquiries, a hard inquiry and a soft inquiry.
Hard credit inquiry. A hard inquiry will affect your credit score. They occur when a potential lender reviews your credit report/score to determine whether or not to approve you. Typically, these hard inquiries will negatively affect your credit score and stay on your credit report for up to two years.
Soft credit inquiry. When you request a copy of your own credit score, this is known as a soft inquiry and will NOT affect your credit. You can check your credit score through companies like Credit Karma.
3. You’ll Pick up on Potential Errors
Credit bureaus do make mistakes and if you’re not reviewing your credit report and credit score these mistakes may go undetected. These errors could potentially lower your credit score which is something you want to avoid. Checking your credit score regularly means if a mistake is made by the bureau you’ll be able to catch it and rectify it.
4. You Can be Realistic About Your Ability to Obtain a Loan
Being denied a loan or approved for a loan with a hefty interest rate is not a great feeling. This feeling is especially bad if you expected to be approved with a good interest rate. By knowing your credit score you can go into a loan application with a more realistic idea of what you’ll be approved for. Lenders will approve you decline your loan application based on that three digit number also known as your credit score. It’s best you know this score before you apply for any loans.
5. Knowing Your Score Helps Improve Your Score
As the old saying goes, knowledge is power and this phrase is very fitting to knowing ones credit score. Knowing your credit score, whether it be bad, mediocre or great can help you towards improving it. Even if you have bad credit, once you know your score you can work on ways to improve it. Check out our blog on how to improve your credit score for some easy tips!