Credit scores express peoples’ trustworthiness with a number between 300 and 850. The higher one’s number, the better one’s creditworthiness and, thus, the better a borrower looks to potential lenders. A credit score predicts how likely the borrower will repay the loan on time.
Most of us usually check our credit scores whenever we need a loan. Often, we forget that our credit health has to be checked regularly, like our financial or physical health. Some people are even afraid of checking their credit scores, while others ignore it because they’re not aware of the importance of credit scores. Some people also think checking their credit score will affect it. Here are some of the reasons why you should regularly check your credit score:
- Know Your Standing
Your credit score indicates your financial health, and ignoring that for a long time can lead to problems in the future. It’s recommended to check your credit score at least once in six months to know where you stand financially. Even if you don’t have a good credit score, regular monitoring will allow you to take certain measures to improve your score. This is especially true if you’re planning to apply for loans in the future. You cannot improve your credit in a few days or even weeks. It’s a long-term process, so regularly checking your credit score will help you track and improve it.
- Check Your Credit Information
Checking your credit score regularly gives you an opportunity to rectify any errors made by the lender. For instance, spelling errors in your name, wrong address or date of birth, incorrectly reported default payment or similar things. Major errors may significantly affect your credit score and make you ineligible for the loan. If you regularly check your credit score, you can check that information and rectify it before it impacts you. If your credit score is lower than you anticipated, you should thoroughly review the credit report generated by the bureaus and look for any errors. If you find any errors, you can directly report them to the bureau or ask your lender to do the same.
- Predict Your Loan Application
One of the biggest advantages of regularly checking credit history is improving the predictability of loan applications. We usually don’t know the outcome whenever we put out an application. However, if you’re aware of your credit score, you will be in a better position to predict the outcome. For instance, if you have a credit score of 700 or above, you will be a better borrower than someone with a credit score of 500.
- Improve Your Credit Score
Continuously checking your credit score means you can take the necessary steps to improve it. For instance, if you see your credit score is suddenly low, you can utilize the information in the credit report to understand what impacted your credit score so much. Further, you can take progressive steps to improve your credit score. For instance, making all your loan payments on time will improve your credit score. Similarly, taking small credits and repaying them fast will reflect well on your credit scores if you plan to get a big loan.
- Control Credit Card Utilization Ratio
Owing a credit card is not simple. You must maintain a credit utilization ratio that doesn’t hurt your credit score while improving your creditworthiness. Often, people use their credit limit to its fullest. However, high credit utilization limit (over 30%) doesn’t always reflect well on you in the eyes of lenders. It signals to them that you’re someone who thrives on credit. Checking your credit score regularly will give you an idea about your utilization limit and help you control it.
- Avoid Identity Theft
Identity theft is one of the biggest concerns for any individual. It happens when someone uses your personal information to conduct financial transactions under your name. One should always ensure that copies of documents like ID/address proof or income certificates are always provided to authorized personnel. This might limit the misuse of such sensitive information. If you check your credit score each month, you can track any unexplained hard inquiries done by fraudsters to steal your identity. Once identified, you can immediately report them to your bureaus or the authorities responsible.
As discussed above, regularly checking your credit score has many benefits. It empowers you to make an informed decision on your loan application and enables you to improve your credit score with time. Also, checking your own credit report doesn’t affect your credit score as it’s a “soft inquiry,” unlike when lenders fetch your credit report, which is called a “hard inquiry.” Therefore, don’t be afraid to check your credit frequently and stay updated about your financial health.
