Does Checking Your Own Credit Score Hurt Your Credit Score?

Credit can be a confusing concept. But if you want to understand your credit scores, you can start by focusing on high-impact factors like your credit card utilization, payment history and any derogatory marks on your reports.

According to TransUnion’s July 2017 credit literacy survey, a lot of people think so. Of the 1,002 U.S. consumers included in the survey, nearly half thought that checking your own credit scores has the same effect as when a lender checks them.

Fortunately, this isn’t the case. As many know, checking your credit scores on Credit Karma is reported as a soft inquiry and it won’t negatively impact them.

But that got us thinking: What other questions or misconceptions do people have about credit? The factors that actually make up a credit score may be a lot different from what you think.

Let’s dig a bit deeper.

What’s in a credit score?

Below are the factors that are typically used to calculate your credit scores, by the level of impact they can have on your scores. Because there are different credit scoring models, how factors are weighted can vary slightly from model to model.

High impact

Credit card utilization: This refers to how much of your available credit you’re using at any given time. It’s determined by dividing your total credit card balances by your total credit card limits.

Most experts recommend keeping your overall credit card utilization below 30 percent. Why? Because lower credit utilization rates suggest to creditors that you can use credit responsibly without relying too much on it. Individuals whose credit card utilization soars above 30 percent may be more likely to fail to repay their loans than those who keep their balances low.

Another benefit of keeping your utilization low? Having available credit can help if something unexpected arises which you then have to pay for.

Payment history: This is represented as a percentage showing how often you’ve made on-time payments. Paying bills on time shows lenders and creditors that you’re reliable and more likely to pay back your debts.

Late or missed payments can significantly harm your credit scores, so it’s important to try to pay all your bills on time.

Derogatory marks: As of July 1, 2017, about half of all tax liens and nearly all civil judgments have been removed from consumers’ credit reports. That’s good news, because having those derogatory marks on your reports can lower your credit scores. Other derogatory marks that may affect your credit include accounts in collections, bankruptcies and foreclosures.

Medium impact

Age of credit history: This factor shows how long you’ve been managing credit. It doesn’t refer to — as some may think — your actual age.

While your average age of accounts isn’t typically the most important factor used to calculate your credit scores, it’s important to think about. Closing your oldest credit card account, for example, could end up negatively impacting your scores.

To sum up: The longer you manage your credit responsibly, the more you demonstrate your creditworthiness to lenders.

Low impact

Total accounts: This refers to the number of credit cards, loans, mortgages and other lines of credit you have.

Lenders generally like to see that you have used a mix of accounts on your credit responsibly. It generally shows that other lenders have trusted you with credit.

Hard inquiries: Hard inquiries usually occur when you apply for a new line of credit, such as a loan, credit card or mortgage, but can also take place when, for example, you rent an apartment.

A lot of hard inquiries on your credit reports within a short time period may suggest that you’re desperate for credit or aren’t getting approved by other lenders.

Hard inquiries can slightly lower your credit scores. It might seem counterintuitive: To build your credit, you need lines of credit — so why should your credit scores take a hit because you applied for a new account?

Some experts say that any time you take on a new credit obligation, there’s an element of risk involved. Credit models see that and want to understand if you’re able to handle that new obligation.

After you’ve made on-time payments for a few months, the impact of that hard inquiry should go away or diminish, experts say.

What Is A Good Credit Score?

There’s no one definition of a good credit score. That’s because there are several different credit scores that depend on different scoring models with different score ranges, and different lenders have their own standards for rating credit scores.

That being said, scores starting in the high 600s and up to the mid-700s (on a scale of 300 to 850) are generally considered to be good.

How A Good Credit Score Can Help You

A credit score is a numeric representation, based on the information in your credit reports, of how “risky” you are as a borrower. In other words, it tells lenders how likely you are to pay back the amount you take on as debt.

Credit scores are one piece of the puzzle that lenders look at to determine whether or not to lend to you. A good credit score can help you get access to a greater variety of loan offers. And if a lender approves your application for credit, a good or excellent credit score can help you qualify for lower interest rates and better terms.

In general, the higher your scores, the better your chances of getting approved for loans with more-favorable terms, including lower interest rates and fees. And this can mean significant savings over the life of the loan.

Having a good score doesn’t necessarily mean you’ll be approved for credit or get the lowest interest rates though, as lenders consider other factors, too. But understanding your credit scores could help you decide which offers to apply for — or how to work on your credit before applying.

Credit Score Ranges

There are many different credit-scoring models, and each one uses a unique formula to calculate credit scores based on the information in your credit reports. Even the best-known credit-scoring companies, FICO and VantageScore, have multiple credit-scoring models that produce different scores. (Credit Karma offers free VantageScore 3.0 credit scores from Equifax and TransUnion.)

But while there are many different credit scores, the most common models all use a scale ranging from 300 to 850. Within this scale, there are some general credit score ranges that can help you interpret what your scores mean.

Here are the credit score ranges to be aware of and what they mean for you.

Poor credit scores: 300 to low-600s

Having poor credit scores can make it difficult to get approved for a loan or unsecured credit card. But a poor credit score isn’t a financial dead end. Certain financial products, like secured credit cards, can help people who are working on building their credit. These products can be a helpful stepping-stone to accessing credit with better terms — if you use them carefully.

Be aware of potential fees and higher interest rates with credit-building products. And make sure the issuer or lender reports to the three major consumer credit bureaus — Equifax, Experian and TransUnion — so that important actions, like when you make on-time payments, can contribute to your scores.

Fair To Good Credit Scores: Low 600s - mid 700s

While you’re comparing your options, know that applying for a new loan or credit card may result in a hard inquiry, which can have a negative impact on your scores. Loans with preapproval or prequalification options can give you an idea of the terms you might qualify for ahead of time.

Very Good And Excellent Credit Scores: Above Mid 700s

People with top credit scores are the most likely to be approved for loans and credit cards with low interest rates and good repayment terms. But having very good or excellent credit scores doesn’t mean you’re a shoo-in for every loan or credit card out there. A lender could deny an application for another reason, like a high debt-to-income ratio.

Regardless of your scores, it’s a good idea to keep an eye on your credit reports so that you’ll know what lenders will see once you apply for a loan.

What Is The Highest Credit Score You Can Get?

There are lots of different credit scores with different ranges out there. But for the major consumer credit scores, generally the highest credit score you can get is 850.

Keep in mind that perfect credit scores may not be necessary to qualify for great rates on loans and mortgages. Once you’re in the “very good to excellent” range, you likely won’t see much of a difference in terms of interest rate offers from, say, a 790 to an 840. Moving from a 650 to a 700 will likely have a more significant impact, which is why the general credit score ranges are important benchmarks to consider.

How Good Should My Credit Scores Be…

To Buy A House

With today’s market, you can purchase a home with a credit score as low as 620, which is the lower end of the “good” credit range. But credit requirements vary depending on your state.

To Rent An Apartment

Prospective landlords may run a credit check before you can sign a lease, but there’s no single credit score benchmark you need to hit to be able to rent an apartment. It can depend on the factors the landlord is looking for in a tenant, as well as where you’re looking to rent.

To Get Approved For A Credit Card

It’s possible to get approved for a credit card with poor credit — or even no credit at all. Once you know what range your credit scores fall into, you can research cards that suit you and your goals.

If you have no credit, look for secured cards or cards for beginners (like student cards). If you have limited or poor credit, secured cards or cards advertised for building or rebuilding credit could be a helpful leg up. Once you’ve improved your credit, you may be able to qualify for more-enticing offers, such as rewards cards or balance transfer cards.

To Get Approved For A Car Loan

You may be able to get approved for a car loan with a poor credit score, but it could be more difficult to find one to qualify for, and you could face high interest rates. If you’re still working on your credit and can’t wait to take out a car loan, consider asking a trusted family member or friend to act as a co-signer, or see if you can put down a larger down payment.

Good credit scores can mean better terms, but it’s still worth comparison shopping.

FAQs

How do I get a good credit score?
Building a good credit score can take time. Here are some general practices we recommend that can help you stay on the right track.

• Check your reports. Knowing your scores and being aware of what’s on your credit reports is the first step to working on your credit. You can check your credit reports from Equifax and TransUnion for free on Credit Karma. Credit Karma also offers free credit monitoring.

• Pay on time. Your payment history is a major factor in your credit scores.

• Pay in full. Keeping your credit card balances low can not only save you money on interest, but can also help keep your credit utilization rate down. Your credit utilization rate is how much of your available credit you’re using. A good rule of thumb is to keep it below 30% of your total credit limit.

• Don’t close old credit accounts. A longer credit history can help increase your credit scores by showing that you understand credit and have been using it for a long time. Keeping your oldest accounts open can ensure that your overall credit history continues to age.

• Consider your credit mix. Your credit mix reflects the different types of credit you have on your reports, from credit cards to student loans. We don’t recommend applying for a loan just to get another type of credit account on your reports, but it’s good to know that this can factor into your scores.

How long does it take to get a good credit score?

It depends on where you’re starting from and what challenges you’re facing. But building good credit probably won’t happen overnight.

If you’re brand new to credit, it could take months of using beginner products like secured cards to make significant progress in the types of financial products you qualify for. If you have dings on your credit reports, like late or missed payments or a bankruptcy, it could take years for those derogatory marks to fall off and stop affecting your scores.

But even if you have years left before those derogatory marks officially fall off, you can still see significant progress. The important thing is to work steadily toward getting your credit in good shape and understand that building credit is a journey.

How do I find out what my credit scores are?

You can get your scores from Equifax and TransUnion for free on Credit Karma. Checking your own scores won’t hurt your credit. And you’re entitled to free credit reports from Equifax and TransUnion each year with details about important credit factors so that it’s easy to track your progress.

What Is A VA Loan?

What is a VA home loan?

The US Government's VA loans program helps veterans, active-duty service members and their families qualify for a home loan. Though they are issued by private lenders like Guaranteed Rate, VA home loans are backed by the US Department of Veterans Affairs. Created during World War II to help returning service men and women purchase homes, this program has guaranteed over 22 million VA loans since 1944.

VA home loans feature no down payment or private mortgage insurance (PMI) requirements, making them a great choice for any veteran or active service member looking to purchase a home. Since the housing market collapse of the 2000s, VA home loans have become even more critical in the wake of stricter lending requirements. For this reason, a guaranteed VA loan is often the best and easiest way for veterans to purchase a home of their own.

What are VA home loan requirements?

A VA loan is a no-brainer for qualified homebuyers and refinancers. The intended candidate is a service member or surviving spouse with a clean financial record. Ask yourself these four questions to determine if you meet the minimum VA home loan requirements:

• Are you a current or ex-military personnel?

• Are you the surviving spouse of a current or ex-military personnel?

• Have you defaulted on a home loan within the last 12 months?

• Have you declared bankruptcy within the last two years?

If you answered "YES" to either of the first two questions and a resounding "NO" to questions three and four, you most likely meet the basic VA home loan requirements.

Other VA home loan requirements have to do with military service time. Specifically, you must have serve for 90 or more days in wartime or 181 or more days in peacetime. In both cases, the stipulation is waived if you are discharged due to a service-related disability. Reserves and National Guard soldiers must serve for at least 6 years to be eligible.

Spouses of deceased service members are eligible for VA loan benefits, provided they have not remarried and that the deceased either:

• Died in service or from a service-related disability.

• Was missing in action or a prisoner of war for at least 90 days.

• Was rated totally disabled and was eligible for disability compensation at the time of death.

Children of deceased veterans are not eligible for VA loan benefits.

The VA loan home advantage

VA loans are fully backed by the government and offer a myriad of advantages for your home purchase or mortgage refinance. Here are the six biggest:

No money down

While conventional loans generally require down payments that can reach up to 20%, no such thing is required with a VA home loan at or under the local conforming limit. Down payments are still an option, of course, but they are not a requirement. The VA allows you to purchase jumbo loans, but requires you to supply 25% of the difference between the loan amount and the loan limit.

No PMI

Private Mortgage Insurance (PMI) is a requirement when you put less than 20% down on the purchase of a home and typically adds 0.2-0.9% of expenses to your monthly mortgage. With a VA loan, you can wave goodbye to PMI!

Competitive interest rates

Since VA loans are guaranteed by the federal government this can provide lenders with a greater sense of safety and flexibility. This can ultimately lead to a more competitive interest rate than you may otherwise receive.

Easier to Qualify

Similarly to the interest rates, the VA loan being backed by the government also lets the banks assume far less of the risk. This can lead to less stringent qualification standards, once the aforementioned qualifications are met.

Fewer credit restrictions

Reduced restrictions mean easier qualification. With a VA loan, you’re allowed a higher debt-to-income ratio and afforded more leniency with your credit score.

Seller assistance

The VA allows sellers to assist with up to 4% of closing costs.

Easy refinance

Borrowers can refinance their homes with a VA streamline or cash-out loan. The streamlined version lowers the mortgage rate of an already existing VA loan, usually for less than the current principal and interest. This means it doesn't require a credit check or appraisal. The cash-out option involves a credit check and appraisal, since the home’s value represents the maximum loan amount and the new loan will be larger than the existing loan.