Understanding Credit Scores and Inquiries
A credit score is a numerical representation of your creditworthiness, typically ranging from 300 to 850, with higher scores indicating better creditworthiness. The most commonly used credit scoring models are FICO and VantageScore.
Components of a Credit Score
Credit scores are calculated based on several factors:
- Payment History (35%): Your record of on-time payments
- Credit Utilization (30%): The ratio of credit card balances to credit limits
- Length of Credit History (15%): How long accounts have been active
- New Credit (10%): Recent inquiries and new accounts
- Credit Mix (10%): Variety of credit account types
Types of Credit Inquiries
Hard Inquiries
Hard inquiries occur when lenders check your credit for lending decisions. These:
- Can lower your score by 5-10 points
- Stay on your report for 2 years
- Usually impact your score for only 12 months
- Are visible to other lenders
Examples include:
- Applying for a mortgage
- Applying for a car loan
- Applying for a credit card
Soft Inquiries
Soft inquiries do not affect your credit score and occur when:
- You check your own credit score
- A lender pre-approves you for an offer
- An employer conducts a background check
- You receive pre-approved credit offers
"Multiple hard inquiries for the same type of loan within a 14-45 day period typically count as just one inquiry." - myFICO
Best Practices for Credit Score Monitoring
- Check your score regularly through free services
- Space out credit applications to minimize hard inquiries
- Monitor your credit report for unauthorized hard pulls
- Dispute any errors you find on your report
- Review reports from all three major bureaus annually
How to Check Your Credit Score
Several free options are available for checking your credit score:
- AnnualCreditReport.com - Official site for free reports
- Major credit card issuers (Chase, Capital One, Discover)
- Credit Karma and Credit Sesame
- Experian, TransUnion, and Equifax
Benefits of Regular Credit Monitoring
Checking your own credit score regularly allows you to:
- Track financial health: Understand how behaviors affect your score
- Detect identity theft: Spot unauthorized accounts or inquiries
- Plan for future credit needs: Know where you stand before applying
- Make informed decisions: Better understand your creditworthiness
For more information about credit scores and monitoring, visit the Consumer Financial Protection Bureau website.