Credit score, a three-digit number, is one of the most sought-after eligibility parameters that lenders and card issuers look for while offering a loan or a credit card. It is a reflection of one’s financial credibility, thus, a low score can be a hindrance in availing the required credit. Keeping that in view, most people make the mistake of checking their credit score only at the time of credit application. However, it is better to check your credit score regularly. Here are a few reasons why:
Meanwhile: Check Free Credit Score
Note: Checking your credit score or credit report regularly has no impact on your credit score and is considered as a soft enquiry. However, when you apply for a loan or a credit card with the provider or card issuer, the credit report is sought from the bureau, which is considered a hard inquiry. Soft enquiries have no impact on your cibil score, unlike hard inquiries that can reduce your score.
1. To Understand the Impact of Financial Actions on your Score
If you check your credit score regularly, you can know if your financial actions are impacting your score, positively or negatively. If there’s anything that has resulted in improvement, you will understand how to improve your score in case it falls in the future, and if there’s anything that has impacted your score negatively, you can avoid doing that.
This is especially relevant after bill and EMI payments. For instance, if you are paying your EMIs and credit card bills in full and on time every month, you can see the positive impact and continue to do so, to build a good score. Also, if you are paying only the minimum due amount of your card bills, you may understand that while there is no direct impact on the score as you are paying on time, due to the over-utilization of the available credit limit, there might be an impact in the long run.
2. To Maintain a Good Credit Utilization Ratio
If you own multiple credit cards, then all credit card issuers will individually report your activities to the credit bureau. In that case, checking your credit report at regular intervals will help you identify your credit utilization ratio on each card and its impact on your credit score. If you use all or most of your credit cards, then it is very likely that the credit utilized on each of them is different from each other. Thus, checking your credit report will give you a clear picture on which card is near to maximized credit limit, and which card you have used less. You will also get a clear idea of how the overall credit limit is impacted by using multiple cards.
Suggested Read: 3 Ways in Which You Can Build Back Your Credit Score
3. To Identify and Rectify Errors on Time
There could be many reasons for a low or poor credit score; incorrect information to the bureaus could be one of them. Card issuers and loan providers report all your credit activity to the bureaus including application and availability of loans and credit cards, on-time or late payments, partial or full payments, and the credit utilization ratio. Any error on part of the lender or bureaus could lead to a lowered credit score.
For instance, there could be unsolicited loans for credit cards issued under your name, fraud transactions, skipped records of on-time payments, or maybe typing or amount errors. Thus, keeping a check on your credit report could help you identify if any of the information provided to the credit bureaus is incorrect. If you identify any of these errors, you can easily get them rectified by filling out an application with the credit reporting company.
4. To Know your Current Financial Position
In addition to understanding the impact and identifying the errors, checking your credit score regularly can also help you know your current financial position. This will be specifically helpful if you have plans to avail personal or home loans in the future. In case you have a low score, you can take on-time measures to improve your score. That way, you can be prepared to avail loans at any given time, as chances of loan rejections are reduced.
On a concluding note, you must understand that checking your credit score regularly is also a part of building your score, as that way you can always identify your financial well-being by identifying errors and taking the required measures to improve it.