You’ve decided you need to apply for credit. Whether you’re seeking a new credit card, personal loan or a mortgage, you’re probably wondering what to do before a credit check.
Fortunately, there are some simple steps you can take to put the best possible face on your credit report. But first, let’s make sure you know the difference between reviewing your credit report and checking your credit score.
Difference Between Checking a Credit Score and a Credit Report
Many people have a misconception that checking your report and your score are the same thing. Unfortunately, there are articles online that get it wrong, too. This is often based on a belief that your credit score is listed on your credit report.
Your score does not appear anywhere on your report, but you don’t have to look too hard to find it. Your score can be accessed in many ways, such as from your credit card issuer, your bank or from websites that offer free educational scores.
Your credit report contains personal identifying information, your credit accounts and related data such as your credit card balances, credit limits and any negative items, such as a collection account or late payment.
By the way, checking your score and checking your credit report don’t impact your score at all. These actions are considered soft inquiries, so feel free to check your score and your report when you feel it’s necessary.
Get Your Free Credit Report
You can get your free annual credit reports at AnnualCreditReport.com. Normally, you can get a free report from each of the three credit bureaus once every 12 months, but through December 2022, you can review your reports weekly.
Unless there’s something going on in your life, like a contentious divorce, you don’t need to review reports weekly. But do look at them as part of your preparation for a credit check. Make sure there aren’t any errors that could drag down your score.
How to Check Your Credit Score
After you review your reports, it’s time to check your credit score. Most likely, you can get a free credit score from your credit card issuer. This might be a FICO score or a VantageScore. Most lenders use a FICO score, but even a VantageScore gives you valuable information about your credit rating.
There are also websites and apps that offer free scores. Once you determine your credit rating, you can decide if you need to spend time boosting your score before you apply for credit.
For instance, if you have a FICO score of at least 760, you’re in a good position to get the lowest interest rates. If your score is close to that number and obtaining credit isn’t urgent, it might be worth it to spend a few months increasing your score.
[Read: Best Cash Back Credit Cards.]
What Does Your Credit Score Tell Lenders About You?
The reason for optimizing your score before a credit check is twofold: A great score helps you get the lowest interest rates, and it also conveys to the lender that you’re worth the risk. When you appear creditworthy, lenders will be more likely to approve your application for a mortgage, car loan or a credit card.
According to myFICO, a consumer with a 760 FICO score, which is in the very good credit range, is considered low risk. Only 2% of consumers with a 760 score are likely to become delinquent.
But someone with a 650 credit score, which is within the fair credit range, is considered to have a medium high risk. About 28% of consumers with a 650 score are likely to become delinquent.
The bottom line? Getting your score as high as possible before applying for credit can save you a lot of money and improve your odds of getting approved for credit.
How to Boost Your Credit Score Fast
There isn’t a magic potion that can make your score jump 100 points by tomorrow. But if you follow this advice, you’ll be pushing your score in the right direction:
— Don’t apply for new credit. Every time you apply for new credit, you can lose up to five points off your score.
— Pay down credit card debt. You have a credit utilization ratio, which is the amount of credit you’ve used compared with the amount you have available. Keep your utilization ratio under 10% to improve your score.
— Increase your credit limit. If you’ve been a stellar cardholder, increasing your credit limit can improve your score. When you increase the amount of credit you have available, you lower your utilization ratio. This, in turn, can boost your score.
— Pay all bills on time. Payment history is 35% of your FICO score. Now is not the time to get sloppy. Be sure you make timely payments, which is something you should be doing anyway.
How to Shop for Mortgage Rates
A hard credit inquiry can possibly decrease your score by up to five points. If you’re applying for a credit card, it’s difficult to avoid it.
But if you’re applying for a mortgage or another kind of loan, you can limit the damage to your score. It will count as only one hard inquiry if you complete your rate shopping within a 14-day window.
The newer FICO scores give you a 45-day window, but older FICO score versions and VantageScore only give you two weeks to complete your rate shopping.
Since you know that each inquiry has the potential to lop off a few points, don’t take that chance. Be organized and get your comparison shopping done within 14 days.
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