Your credit report score may be dropping, not because of something you’re doing wrong, but because of too many lenders checking to see if you’re a good risk.
Most people know that when you apply for a new loan or line of credit, the lender will check your credit report and background before approving your application. What some people aren’t aware of is that some lenders and card companies periodically request credit checks just to see if your status has changed. Customers who are particularly subject to closer scrutiny by lenders are those who make late payments, whose balance due keeps increasing, and those who go over their credit limit. If a lender decides that you’re not as good a risk as you used to be, they may lower your borrowing limit, increase your interest rate, or both.
However, in today’s uncertain economy and with the financial industry particularly hard-hit, lenders are making more detailed checks for loan applications even from people with a good financial background. If you are concerned about protecting your credit score (as you should be), then it pays to check your report periodically to ensure it is correct, prior to having a lender request for it.
When a lender requests a check of your credit, it remains on your record. When subsequent inquiries are made, each of those companies can see how many times your credit report has been requested. If there are too many inquiries within a short period of time, your rating could suffer as a result. Many people aren’t aware of this problem until they are suddenly denied funds because there have been too many inquiries in too short an amount of time. But your credit score won’t be affected whenever you do your own check of your report.
This is also a good idea, so you can judge how lenders might view you as a potential customer, and to see whether or not there are errors or unauthorized checks of your score. These reports also give you information about how your credit history stacks up against the average ratings of the population.
Everyone is entitled to one free copy of their credit report each year from the three credit bureaus: Equifax, TransUnion, and Experian. You can request this report online from any of these three agencies, or you can visit GoFreeCredit to check your credit. Since you can get only one a year, it’s a good idea to space your requests throughout the year i.e. from one of the bureaus every three to four months. That way you’ll be checking your report for free three times a year.
After reviewing your report for errors, take steps to remove anything that might be pulling your score down. There are things you can do on a regular basis to increase your credit score; do your best to pay your bills on time, keep your overall debt to earning ratio low, and don’t overextend your finances to the point that you can’t keep up with paying your debt. The more you do to keep your record clean, the more likelier that you will be able to obtain funds when you need them.