Every day, the two credit rating assessment firms, Equifax and TransUnion, receive millions of pieces of information about citizens, as well as thousands of requests for verifications. But does each credit verification affect the score? How does the rating system work when it comes to credit checks?
The credit report verifications that don’t affect the rating
There are so many urban legends about credit reports out there that many people no longer even dare to check their report. However, when you check your report, this doesn’t affect your rating, because this procedure isn’t considered a credit application. You can therefore check your report regularly, and you should, because the data that appears there is frequently updated and mistakes are numerous – and yet, this is the only way for you to detect false information and fraud, and to have this corrected.
Credit verifications requested by tax services or the police also don’t affect your rating.
As for verifications carried out by insurers, they’re not considered credit applications and don’t affect the score. Indeed, insurance companies frequently ask to verify scores because there’s a correlation between the credit rating and the number of claims. Although you’re under no obligation to do so, you therefore have every interest in letting your insurer check your report if it’s good: that way, you’ll get better rates.
Finally, checks carried out by institutions to update their data for an account that you’ve already opened with them don’t affect your score: these aren’t credit applications, but simply verifications to determine if you’re eligible for a promotion or an increase to your credit limit.
The verifications that negatively influence the rating
It’s true: by and large, credit applications have a negative impact on your credit rating, even if one or more of these applications are approved. To avoid the verifications that aren’t essential and cost you points on your score, you should avoid:
- Shopping for your mortgages and loans at too many lenders,
- Applying for too many credit cards, because the merchant also checks your report. Ideally, you should limit yourself to two.
- Meeting with your financial institution before having verified your debt ratio yourself. Calculate your debt ratio before applying for credit and refrain from asking your bank if it’s higher than 40%: you’ll avoid negatively affecting your rating for no good reason, because with this rate, the loan will certainly be rejected anyway.
However, you can’t avoid some of the verifications that affect your score, such as when:
- You apply for credit to buy a new car,
- You change your phone service provider,
- You get a mortgage pre-approval,
- You apply for a new card.
However, it’s possible to minimize the impact on the score by combining the loan applications over a maximum of two weeks: that way, they’ll be considered a single application. These applications will still affect your rating, but much less than if they had been spread out over a year.
Not all credit verifications affect your credit rating the same way, especially those for insurers, file updates, and those that you perform yourself. You therefore have every interest in checking your report regularly: that way, you’ll be able to detect incorrect information and potential fraud in order to have the data corrected if necessary.