Specifically, how to CHECK your credit.
Your credit score can range from 300 to 850. A “good” credit score is usually considered above 700 BUT this depends on what (and where) you are applying.
The average rating categories are broken down as follows:
Excellent Credit: 750+
Good Credit: 700-749
Fair Credit: 650-699
Poor Credit: 600-649
Bad Credit: below 600
I will write additional articles in the future regarding how to build credit, manage credit (for the ultimate 850 credit score) and more importantly for some of you, how to REBUILD credit.
However, because I could write a book on each of the above topics, today I will just stick to how to check your credit.
Before I get started with that, I want to clear the air on on a few “myths”.
First myth: checking your credit causes your score to go down.
FALSE! Checking your score will NEVER affect your score.
You could check your credit score daily and it would never affect your score.
Why? Because checking your credit is considered a “soft pull”.
According to CreditSesame.com, “checking your own credit counts as a soft inquiry, which means you can check it as many times as you like without any risk of hurting your score. In fact, you should check your credit report and score regularly, particularly if you’re concerned about identity theft or reporting errors. An unexpected drop in your score, for example, might mean that someone has gotten credit in your name and failed to make payments, or that incorrect information is being reported in connection with one of your credit accounts.”
I know SOFT PULLS and HARD PULLS can be a little confusing so here is the awesome team over at CreditKarma to explain more.
"The difference between a hard and soft inquiry generally boils down to whether you gave the lender permission to check your credit. If you did, it may be reported as a hard inquiry. If you didn’t, it should be reported as a soft inquiry.
Let’s look at some examples of when a hard inquiry or a soft inquiry might be placed on your credit reports. Note: The following lists are not exhaustive and should be treated as a general guide.
Common hard inquiries
Auto loan applications
Credit card applications
Student loan applications
Personal loan applications
Apartment rental applications
Common soft inquiries
Checking your credit scores on Credit Karma
“Pre-qualified” credit card offers
“Pre-qualified” insurance quotes
Employment verification (i.e. background check)
Keep in mind, there are other types of credit checks that could show up as either a hard or soft inquiry. For example, utility, cable, internet and cellphone providers will often check your credit.
If you’re unsure how a particular inquiry will be classified, ask the company, credit card issuer or financial institution involved to distinguish whether it’s a hard or soft credit inquiry."
Second Myth: You have one credit score.
FALSE! Everyone who pulls your score will see a different score.
Why? Because everytime someone “pulls” your score, they will use a different grading “system”.
The information is the same, but how companies “rate” that information changes depending on who they are.
Mortgage companies use different criteria then car dealers who use different criteria then credit card companies.
This means that one credit card company could deny you while another could approve you for $5k. The truth is the credit reporting system is a cluster **** and is used/abused by many different companies.
Some companies will create their own “scoring model” but most companies will use a specific type of rating system which does create some uniformity (but not much). Over 90% of the industry uses either FICO or more recently the “new guy in town” VantageScore.
According to CreditKarm.com “the Fair Isaac Corporation introduced the first FICO® scoring model to lenders in 1989. According to the company, FICO® scores are used today by 90% of top lenders to make lending decisions. The VantageScore model wasn’t introduced until 2006. It was developed by the three major consumer credit bureaus — Equifax, Experian and TransUnion — to create a “more predictive scoring model that is easy to understand and apply.”
What makes this system even more complicated is there are multiple versions of each model. We are currently on FICO 9 and VantageScore 4. This means that your score could vary as much as 100+ points depending on what version of which system the company you are applying at has paid for.
On top of this, businesses do not HAVE to use FICO or VantageScore. They can create their own “filters” and use those for credit decisions.
The logical answer to this information would be to just apply everywhere BUT you can’t do that because each time someone does a “hardpull” on your credit report it DOES have a negative effect (hardpulls count for 10% of your score). This is why you want to do as much research into the credit checking process of where you are applying beforehand to avoid unnecessary hits to your credit.
There are obviously many more credit myths but those are the two important ones to cover for our training.
With that out of the way, let’s jump into it!
Part 1: The Credit “Agencies”
These 3 agencies do NOT “rate” you, they only collect information about your financially related activities. They do this primarily by incentivizing businesses that transact with you to self report or they collect and track your information using their in house team.
This means it’s important to monitor all 3 regularly and whenever someone needs to pull your credit report make sure to ask what agency they are pulling from. 99% of the time it will be one of these 3 (or sometimes all 3) but there are many other reporting agencies out there.
As we reviewed above, you also need to ask what scoring model they are using. Most of the time the person you are working with won’t even know the answer to this but having this info will help you identify what is causing you to be denied.
Because not all 3 of these agencies will have 100% of your information accurately in their database. Usually about 50% of your financial accounts that report to credit agencies will show up the same across all 3. You then have roughly 30% of your accounts that will show up on 1 or 2 of the 3. Then you have about 20% of your accounts that might show up on 1 of the 3.
It’s ridiculous considering the power of your credit report that there is not 100% accuracy. The reason not all accounts report is your financial agencies must manually submit information (which costs them money).
This is why most of the time the “fringe” companies (aka the 30% I mentioned above) only report negative information (it’s cheaper for them).
What is important to monitor on your credit report?
According to Credit.com, “....while the exact credit score ranges may vary, most models are based on the same five categories:
Payment History (accounts for 35% of most scores)
Credit Utilization (accounts for 30% of most scores)
Length of Credit History (accounts for 15% of most scores)
Mix of Accounts (accounts for 10% of most scores)
New Credit Inquiries (accounts for 10% of most scores)
I will get into reading and optimizing your credit report more in later trainings so in the meantime let’s get back to simply pulling your credit score.
You can buy a credit report from each of these three agencies from 3rd parties for anywhere from $9 to $49 per month….
…..OR you can use the 2 sites I suggest below and get your reports for free.
Part 2: CreditKarma
The first site you need to sign up for is creditkarma.com.
This site is 100% FREE forever and will allow you to check your Equifax and Transunion scores every 7 days.
NOTE: as mentioned above, you are seeing the CreditKarma “score” which is currently using VantageScore 3.0. Never assume that your score on CreditKarma is the score someone will see when they pull your credit. You are using this site simply to monitor what is showing up on your credit score.
Why is this site free? Because CreditKarma gets paid to show you compatible ads for credit cards, loans etc that match your credit score. Although it can be midly annoying at times, this is actually a great feature because it allows you to see what you MIGHT qualify for without having to suffer a hardpull credit hit.
Part 3: Experian
Experian is actually awesome enough to provide free access to the information stored on your Experian credit report. Your “score” is provided using Experian’s unique scoring system so AGAIN, never trust that this is the score others will see when they pull your report.
You can sign up for free by CLICKING HERE.
Experian allows you to “update” your score and report every 30 days. They "fund" this free access by suggesting credit cards, loans, etc similar to CreditKarma.
You will never have to pay for access to your credit report ever again. Don’t let the ads from “credit monitoring systems” pull you in, you don’t need those services when you have access to these two sites.
I will be writing more trainings on credit soon but in the meantime make sure to keep all credit usage around 30% max on all of your credit cards for the best score.
I look forward to helping you achieve your maximum impact on the world!