The One Thing You Should Always Check On Your Credit Report
A credit report is like an individual’s financial resume which needs to be accurate and only contains positive information whenever possible. Reviewing the report periodically is a sound practice worth handling at least once per year.
A credit report comprises several sections, but the inquiries section is one of the most important. Read on to explore this vital section in greater depth.
The Inquiries Section
A credit inquiry is a request made by a landlord, employer, or lender to seek your credit report. The report helps the lender determine your creditworthiness. The inquiry can be hard or soft, depending on its nature.
Whenever you come across an offer for a credit card or want to open a new account, it is important to check your report first. You are eligible to receive one free report each year from all the three major bureaus including Equifax, Experian, and TransUnion.
Once you have the report, visit the inquiries section which lists all past inquiries that potential lenders can see. You can receive a detailed overview of each inquiry, including which entity made the inquiry, when it was made, and how long it will continue to appear.
The number of recent inquiries on your report can help you understand whether you should apply for a new account and how prospective lenders will perceive your creditworthiness. Too many inquiries are not ideal, as they temporarily affect your score.
Soft Inquiries Vs Hard Inquiries
A soft inquiry can happen upon your request when you want to check the report. Some lenders might also request a soft inquiry before sending you pre-approval offers. Even your potential employer might pull your report, which may be a part of some hiring screening processes.
Hard inquiries, which are also referred to as hard pulls or hard credit checks, happen when you apply for a new credit card or loan. Lenders check your report to determine your creditworthiness.
Hard inquiries affect your score, unlike soft inquiries. Your score will decrease if you are applying for too many credit accounts in quick succession. This could include a mortgage, auto loan, and credit card.
When you are shopping for the best rate on a single loan, multiple inquiries for similar types of financing within a certain time frame are counted as a single inquiry. This helps minimize the overall impact on your score.
The Status Of Accounts Section
This section of the report contains information on each account reported to credit bureaus. It summarizes the account’s payment details. This is another important section because any potential lender will use it to evaluate your risk and calculate the applicable interest rate.
Closed accounts are also listed here, with an overview of how you handled them when they were open. It includes duration and payment history. The different account statuses included in the report are as follows:
- Paid/Closed Never Late: There were no delayed payments, and the account is closed now.
- Pays As Agreed: Regular payments followed according to the agreement terms.
- Account Paid in Full for Less Than Full Balance or Settled: Full payment did not happen, or the account got settled for the lesser-than-owed amount.
- 60 Days/120 Days Past Due: The minimum payment on the open account is late and not received thus far.
Removing Hard Inquiries
It might be tempting to remove hard inquiries from your report to improve your score. However, if the inquiries are genuine, it is not worth trying as your score will not change.
If you find that an inquiry results from fraudulent activity, you can dispute it. Identity thieves use your personally identifiable information and Social Security number to create a new account in your name.
While the score drops by a few points temporarily, your lender might not categorically decline your application because of hard inquiries. These inquiries remain on the report for around two years, but will probably only impact your score for a few months.
Good Credit Habits To Adopt
When you want to build good credit, employing good financial habits is important. It becomes more prominent, especially when you want to improve your score or apply for new credit.
These habits must be a part of your standard financial routine as well. Some of the best practices worth mirroring are listed below.
- Always pay your bills, even the ones with the smallest amounts, on time. There is no second choice here.
- Even if there is a temptation to pay the minimum amount, always make full payments.
- Never use your entire line of credit, no matter how desperate the financial situation.
- Know your available credit balances and track them regularly.
- Always check your report at periodic intervals.
- Know your current score and check for deviations.
Understanding how to read a credit report and its key sections like inquiries and status of accounts are essential for tracking your score and improving your credit history with appropriate strategies.
Monitor your report regularly to ensure you always showcase strong financial practices for any potential lender reviewing your creditworthiness.