Credit scores can determine how you live, where you live, whether you have access to financial products such as credit cards, what you pay for insurance rates and much more.
With so much depending on the information in your credit reports, there are at least 4 reasons to check your credit score regularly.
A low credit score can even mean the difference between employment and unemployment.
The federal government, under the Fact Act, has made it possible for consumers to check their credit report from each of the three major credit bureaus every 12 months for free from annualcreditreport.com. But, during the COVID-19 pandemic, weekly free credit reports are available from the three major credit bureaus through December 31, 2022. However, there is a fee if you want to access your credit scores.
Even if annualcreditreport.com offered a free credit score, checking your credit score once every 12 months could prove to be disastrous and here is an example why:
You are thinking about purchasing a home. Before applying you pull your own credit reports and scores and everything looks good. A month or two later you visit your banker or mortgage broker to apply and those good credit scores are now lower due to a change in utilization, late payment or inaccurate information being reported. It could mean a denial of credit by not regularly monitoring your credit scores.
Here are 4 reasons to check your credit score on a regularly, at least on a monthly basis:
1. Credit scores can change daily.
If you are under the impression credit scores change infrequently you are wrong. Credit scores are dynamic, not static. The credit scoring systems are dynamic which means scores are calculated based upon the information existing as of that time.
Creditors report on-time payments, balances, missed payments, highest credit used and lots of other information to the credit bureaus on a monthly basis which makes the information in your file fluid. Now compound that with the total amount of creditors you have reporting account information. Your credit scores will change as the information in your credit file changes.
This could prove beneficial for consumers looking to improve their credit scores quickly. For instance, if you pay off or pay down a high balance credit card, the amount owed changes which could mean your credit score also changes because the amount owed accounts for 30% of your credit score.
Let’s say there is a negative account, especially a recent negative such as a collection account or charge-off, if you are able to get that negative item deleted, your credit score will reflect an immediate increase. As the information in your credit file changes, so does your credit score.
2. Knowing your credit score can empower you.
Generally, the higher your credit score, the better the interest rate on credit cards, installment loans, mortgage loans and even insurance rates. When you check your credit scores regularly, especially if you are in the market for a financial product, empowers you to capitalize off your best credit score.
Besides, if you are in the market to make a major purchase such as an auto or mortgage, it is imperative you know where you stand before you apply for a loan. Consumers, who are aware of their credit score changes, higher or lower, are in a better position to negotiate competitive rates.
3. Knowing what affects your credit score can help you change it.
While it is public knowledge the two major contributing factors to your credit score are: (1) Payment History at 35% and (2) Amount Owed is 30%, it is far more valuable to see how it actually works by monitoring your credit score. If consumers could see how a missed payment causes an immediate score reduction or paying off an account causes an immediate increase, perhaps better credit habits would be developed.
It is one thing to tell a consumer what makes up a credit score, it’s a whole different experience when a consumer actually sees a change in credit score based upon credit habits and management.
4. Your creditors review your credit monthly, why shouldn’t you?
Have you ever viewed your credit report and wondered what an account review meant and why your creditor or creditors are checking your credit every month? Those of you with an American Express card may know exactly what I am talking about. American Express account holders are subjected to monthly “account reviews” where your credit is pulled every month.
Even though the inquiry is a soft one and does not adversely affect your credit score, the account review may actually result in an adverse action being taken. Let’s say American Express discovers you have opened several new accounts, you were late with other account obligations or you are maxing out other credit cards, they will use that information to make a decision to lower the limit on your credit account with them or possibly even close your account.
I just singled out American Express but they are not the only creditors who subject account holders to monthly credit reviews. Your creditors are constantly monitoring your credit, why shouldn’t you? You should value knowing your credit scores and a credit score monitoring program gives you the access needed to know your credit score at all times.