If you’ve never checked your credit score, you’re not alone — far from it, in fact. According to a Bank of Montreal survey, more than half of all Manitobans have never looked up their credit score and most said a fear of lowering their credit score was the main reason for avoiding the inquiry. This is unfortunate because the opposite is actually true.
Checking your credit score regularly is the first step to improving your credit standing. Keep reading to find out why.
Why you should check your credit score regularly:
- You can check your credit score instantly online
- Checking your credit score won’t lower it
- Your credit situation likely isn’t as bad as you think
- Fixing credit report errors can improve your credit score
- Loan application outcomes won’t be a surprise
You can check your credit score instantly online
Before we explain how to access your credit score, let’s get one thing straight: your credit score is different than your credit report.
Your credit score is a three-digit number based on the information in your credit report. It gives lenders a snapshot of your overall creditworthiness. On the other hand, your credit report is a detailed transcript that includes information about your borrowing history and behaviour. Both are available through the two main credit bureaus in Canada — Equifax Canada and TransUnion Canada.
While you’re granted one free credit report a year from each bureau, you’ll have to pay to see your credit score. Equifax and TransUnion both offer instant online access to your credit score for a one-time fee or a monthly subscription for around $20.
There are also services that claim to provide free credit scores, but the fine print usually tells a different story. It’s best to go straight to the source so you know the information you’re paying for is correct
Checking your credit score won’t lower it
Contrary to popular belief, looking at your credit score won’t lower it. This is because checking your own credit score is considered a “soft inquiry” and doesn’t affect your credit in any way. Lenders can also make soft inquiries without your knowledge in order to do a background check for things like car loan or mortgage pre-approvals.
Hard inquiries occur when a prospective lender checks your credit report to make a final decision on a loan application. These inquiries will lower your score slightly and will typically stay on your report for two years, which is why it’s not a good idea to shop around when applying for a car loan.
Your credit situation likely isn’t as bad as you think
Ignorance isn’t bliss when it comes to your credit score. Many people avoid checking their score because they’re scared of what they might find. However, if you don’t know where you stand, you won’t know how to change your borrowing behaviour.
Even if your credit score is on the lower end of the scale (less than 620), it’s not the end of the world. Credit scores are affected by all kinds of things and they can change daily. A low number right now doesn’t mean a low number forever and there are plenty of things you can do to improve your credit score.
Whether you have a hard time paying your bills on time or you are carrying too much debt, checking your credit score and requesting a copy of your credit report will help you understand where you should make changes.
Fixing credit report errors can improve your credit score
Credit report errors are more common than you might think, but thankfully there are steps you can take to address mistakes. You should request a credit report from Equifax and TransUnion at least once a year to make sure all of your credit information is correct.
While some issues are harmless, like an incorrect date of birth, others can negatively affect your credit score. Serious errors include things like identity fraud or credit card debts from someone with a similar name showing up on your account.
If you do find an error on your credit report, you can file a dispute with the bureau.
Loan application outcomes won’t be a surprise
If you’ve ever been denied a loan, you know it’s not a nice feeling. By knowing your credit score, you can avoid being surprised by the outcome of a loan application in the future.
For most lenders, the decision to approve or deny your loan application comes down to your three-digit credit score. To a lender, a higher score means you will likely pay back your debt on time and in full, while a lower score means you’re a riskier borrower. Because of this, people with lower credit scores will often be charged higher interest rates to borrow money.
Knowing what your score is will help you prepare for a car loan application in two ways. One, you will be able to decide if you should work on improving your score before you apply. And two, knowing the kinds of interest rates you can access will make negotiating the terms of your loan agreement a more comfortable experience.
At Birchwood Credit Solutions our in-house financing experts look beyond your credit score and take your whole financial situation into account when processing your car loan application. Get in touch with us today to find out more about our quick and easy online applications.
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