What’s the Difference Between a Hard and Soft Credit Check?

BY 

CHRISTY RODRIGUEZ

– UPDATED: AUGUST 2, 2022

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When a lender or creditor is considering offering you a line of credit or a loan, they’ll check your credit to help determine whether or not to lend you money.

These inquiries can take the form of a hard inquiry, which does affect your credit score, or a soft inquiry, which does not. The type of credit inquiry performed will depend on the person or company pulling your credit information.

In this article, we’ll explain the differences between the 2 types, give you some common examples of both, and let you know how much each type will impact your credit.

What Is a Hard Credit Check?

A hard inquiry (or hard pull) is used to determine whether or not you’re eligible to be given a loan or credit card. If you apply for credit — like a mortgage, auto loan, or credit card — the lender will check your credit report and credit score from 1 or more of the major credit bureaus.

When a company requests a hard inquiry on your credit, it will receive your entire credit report, which will show things like lines of credit, loans, your payment history, and any amounts that went to or are currently in collections. It can also include additional places that you might have applied to get credit — whether that’s a car loan, mortgage, student loan, or credit card.

Because these inquiries are tied to an actual credit application, they’re considered hard inquiries, and they can affect your credit score. Your permission (via credit card application, mortgage application, etc.) is required for lenders to make hard inquiries on your credit. These pulls can lower your score, especially if you have several of them within a short time span. Credit inquiries make up 10% of your overall FICO score.

Who Uses Hard Inquiries?

Hard inquiries are used by companies to make sure you’re likely to pay back the loan you’re requesting or the lease you’re signing.

Here are the most common users of hard inquiries:

Lenders and Credit Card Companies

Lenders and credit card companies use a hard inquiry to make an informed financial decision on whether or not to loan you money or a line of credit. This will be the case whether you’re applying for a mortgage, a student loan, or a new credit card.

One exception is with some banks that have specific requirements, such as “receiving a bonus within the past 48 months” or Amex’s “1 bonus per card per lifetime” policy. If you’ve been denied a credit card based on these reasons, you usually won’t see a hard inquiry show up on your credit report. This is because banks typically use the information they have on file for you to conditionally approve or deny you prior to pulling your credit.

Landlords

Landlords can choose to run either hard or soft credit inquiries. Usually, when you submit an application for an apartment, the landlord will include a form that will ask your permission to run a credit check. Some landlords go through third-party background and screening companies who do a hard pull since you must give your Social Security number.

This isn’t always the case as landlords can choose to use services offered by 1 of the 3 major credit bureaus instead. These are considered soft pulls and the landlord will receive a modified report.

Common Hard Inquiries

The most common hard inquires will occur when you submit:

• Apartment rental applications
• Auto loan applications
• Credit card applications
• Mortgage applications
• Personal loan applications
• Student loan applications

How Hard Inquiries Impact Your Credit Scores

Applying for a credit card or a loan will result in a hard inquiry on your credit report. As we noted earlier, inquiries make up 10% of your overall FICO score.

But how will your overall score be impacted? Well, 1 hard inquiry might lower your score from 0 to 5 points, depending on your credit history. If you have even more inquiries, this will be further magnified. In general, once you hit 7+ inquiries on your credit report, you should expect to see a significant drop of 50+ points in your credit score.

This shouldn’t be a reason to avoid applying for credit since a hard inquiry is required to get the credit card or loan that you want. If your score is high enough, it will have little impact (if any) on your creditworthiness.

Problems arise when you have too many hard inquiries in a short period of time. This can be concerning to lenders since it’s a sign of poor money management — opening a lot of new credit accounts may mean you’re having trouble paying bills and are at risk of overspending.

Bottom Line:Unfortunately, there isn’t a simple answer to how much your score will be impacted by a hard inquiry — this will vary based directly on your individual credit history and the number of inquiries on your credit report. The good news is that unless you are carrying out multiple hard checks, it’s unlikely to have much of an impact in the long term. 

How “Rate Shopping” Is Treated

What do you do if you’re looking to get a mortgage or an auto loan and want to make sure you’re getting the best rate? The good news is that rating agencies understand that several inquiries in a short period of time (30 days per FICO’s scoring model) are common when looking for the best rate, and they’ll group those inquiries into a single hard inquiry on your report.

Note that this occurs only if the inquiries are for 1 category of qualified loans — a mortgage, auto loan, or student loan. While a hard inquiry will always impact your credit score, this grouping of inquiries results in a smaller impact than multiple, separate inquiries.

Hot Tip:Hard inquiries are rarely the reason you might be denied credit since they don’t affect your credit score as much as other factors like credit utilization and length of credit history.

How Long Inquiries Stay On Your Credit Report

We recommend checking your credit report at least once a year to ensure that all of the information is accurate. You’re entitled to 1 free report per bureau per year through AnnualCreditReport.com. These reports will show all of your financial accounts along with any hard inquiries on your report.

Hard inquiries remain on your credit report for just over 2 years, but FICO weighs them less as time passes. Even if you have multiple hard inquiries in a span of just a few months, it’s still unlikely a potential lender will give them too much consideration.

How To Dispute Inaccurate Hard Inquiries

If you’re checking your credit report as we’ve recommended above, be sure to look for any inquiries you don’t recognize. This could be a sign that someone may have applied for a fraudulent credit account in your name. Also, simple errors in classification can happen.

Either way, if you spot an erroneous pull, notify the credit bureau immediately to dispute it. Write a letter explaining the error and include a copy of your report with the error highlighted or circled.

The bureau will investigate and respond within 30 days. Credit bureaus are legally required to remove the hard inquiry from your report if it is inaccurate, and once it’s removed, you should see your credit score return to its prior level. You should also reach out to the financial institution that ran the credit check to let them know that you did not request it.

Hot Tip:Read our complete guide on how to dispute errors on your credit report.

What Is a Soft Credit Check?

A soft inquiry (or a soft pull) shows the same information that we’ve noted above for hard inquiries. This includes lines of credit, loans, your payment history, and any amounts that went to or are in collections.

Unfortunately, due to the nature of soft inquiries, they can occur without your permission. The good news is that because soft inquiries aren’t tied to any applications for credit that you’ve done yourself, they’re only visible on your own credit report with a few exceptions:

• Insurance companies may be able to see other insurance companies’ soft inquiries.
• Inquiries by debt-settlement companies you have authorized to access your report may be shared with your current creditors.

Who Uses Soft Inquiries?

Since soft inquiries don’t require your approval, it’s important to know who can access them — here are the most common users of soft inquiries:

Yourself

The most common instance of a soft inquiry would be when you monitor your own credit report. This includes services you use to monitor your credit score, like Credit Karma (review) or Mint. These can be pulled weekly, monthly, or as you request them.

Employers

The modified credit report that potential employers see is not the same report that you (or even other lenders) see. According to a 2018 HR.com report, 16% of companies pull credit or financial checks on all job candidates and almost 33% do credit checks on some candidates.

Credit Card Companies

Credit card companies are often the biggest users of soft inquiries — and they usually happen without your approval. This is because they use these soft pulls as a way to see if you’re prequalified for a credit card. Similar to what an employer sees, credit card companies won’t see information like your account numbers but will see things like your payment history and if you have any accounts in collections.

The companies will then send you the offers that might appeal to you to try to entice you to sign up for a new card. This can definitely get annoying (and take up plenty of space in your inbox!), but companies are hoping that one of the offers you see might catch your eye and will be too good to pass up.

Insurance Companies

If you get auto insurance, homeowners insurance, or any other insurance quotes in the mail, this will also involve a soft pull. Again, these happen without your authorization and are used to give you an accurate quote based on your credit history.

These insurance companies don’t see your regular credit score, but rather what’s called a credit-based insurance score. They see a score that’s similar to your FICO score but is weighted a little differently.

Pre-employment Soft Credit Checks 

While you might expect insurance and credit card companies to check your score, it could come as a surprise to see that employers also perform this somewhat sensitive background check. Let’s take a closer look at what is and isn’t permitted, as well as how to be prepared for the situation.

What Will a Prospective Employer Look For?

Potential employers often use credit checks as a way to determine if you’re a responsible person. They can see information such as your mortgage, outstanding balances, auto or student loans, late or missed payments, bankruptcies and foreclosures, and accounts that have gone to collections.

Having some negative items on your credit report doesn’t mean you won’t get the job, but lots of late payments or bills in collections can let employers know that you have a hard time staying organized with your money. While they’ll be able to see information dating back 7 years, more recent information will typically be weighted more heavily in any decisions they make.

What Positions Do Credit Checks Apply To?

An employer can run a credit check for any role if they wish, although it is unlikely to have too much impact on their final decision unless you’re applying for a role that requires you to regularly handle money.

Jobs where your credit score might have more of an impact on an employer’s choice to hire you or not include:

• Finance management
• Banking
• Accounting
• Retail jobs

A bad credit report will not automatically deny you a role in any of these industries, but it might make it harder for a prospective employer to know they can trust you.

What Is the Process?

The check will take place once an employer is prepared to offer you a job (or, as is sometimes the case with current employers, a promotion). They’ll reach out to a third-party company to perform a check on your financial history.

The report itself will be carried out in much the same way as if you yourself were checking your own score. The employer will be provided with financial factors such as:

• Credit and debit card debt
• Mortgage payments
• Loan repayments
• The late payment of debts
• Any cases of bankruptcies

Despite seeing this relatively sensitive information, an employer will be restricted from gaining access to most of your personal data. For example, your date of birth will not be included, so as to prevent any kind of age discrimination when assessing your application.

What Are Your Rights?

The Fair Credit Reporting Act (FCRA) protects your rights and makes it so that employers must have written consent before pulling your credit history. This might be done as part of your application process, or they may ask for your permission later on in the interview process.

This modified credit check won’t show your credit scores or any account numbers. It also won’t show any information that could violate equal employment regulations, like your birth year or marital status.

In addition, there are some cities and states that restrict credit checks as part of the decision for employment:

How To Be Prepared for Pre-employment Checks 

While you won’t be able to make drastic changes to your credit score in the time between applying for a job and any potential pre-employment check, there are steps you can take to be as prepared as possible for any tricky questions.

• Understand your score. Put the power back in your hands by gaining a detailed understanding of your own score. If you think your report might not represent you well, form responses as to why that might be the case. An employer may be willing to overlook a poor score if you can clearly highlight how it has no bearing on your job performance.
• Check for errors in your report. Checking your score before you apply also gives you the chance to identify and dispute any errors which may have been falsely included. You’ll be given the chance to file a 100-word statement that disputes any misinformation, which an employer should be able to see when carrying out a check. Even if a lender doesn’t agree with your statement, it can go a long way to looking better in the eyes of a prospective employer.
• Think about where you’re applying. The weight an employer places on your credit score will naturally vary, depending on a number of factors. Chief amongst those is the sector you’re applying to, as well as the size of the company in question. If you’re worried your credit score is going to impact your application, think about applying to smaller companies, which are more likely to overlook a bad report.

Bottom Line:Employers don’t always run your credit, but if your job involves company finances, it’s likely they will. 

Common Soft Inquiries

As a quick recap, the most common soft inquiries will happen when:

• You check your own credit score (annual or continuous monitoring)
• Employers run your background check
• Companies “prequalify” you for a credit card or insurance

How Soft Inquiries Impact Your Credit Score

While hard and soft inquiries show the same information, the main difference is that soft inquiries have no effect on your credit score. They aren’t even built into any credit-scoring models!

Soft inquiries are also not disputable. However, remember that potential lenders won’t be able to see them (except for insurance companies and debt-settlement companies as we’ve noted earlier).

How To Know if an Inquiry Will Be Hard or Soft

The difference between a hard and soft inquiry comes down to whether you gave the lender permission to check your credit or not. If you did, it will likely be reported as a hard inquiry. By signing a document, such as a credit card application, loan application, etc., you’re giving the company permission to pull your credit. If you didn’t sign any documents or otherwise approve a credit inquiry, it should be reported as a soft inquiry.

There are other types of credit checks that could show up as either a hard or soft inquiry. For example, utility, cable, internet, and mobile providers will often check your credit. If you’re unsure how a particular inquiry will be classified, you can always ask the company, credit card issuer, or financial institution to clarify before you sign any documents or turn in your application.

Managing Your Credit

Try to keep hard inquiries on your credit to a minimum since it can signify that you’re over-extending your finances and aren’t a reliable borrower. You don’t want your credit score to suffer by applying for too many credit cards or other loans.

Apply for Loans Sporadically

The easiest way to keep credit inquiries from affecting your score is to manage how often you’re applying for loans or lines of credit. Be mindful of opening a lot of new credit accounts within the 2-year window when inquiries show up on your credit report. If possible, wait until some inquiries drop off before applying for additional credit.

In addition, shopping for multiple rates within 30 days is grouped together and treated by FICO as 1 inquiry. If you’re shopping for the best rate for a mortgage, car loan, etc., try to do all of your loan applications within this timeframe.

Avoid Getting Denied

While the denial itself won’t hurt your score any more than an approval, you may still see a drop in your credit from the hard inquiry. One of the worst things would be to have this hard inquiry show up on your account and not even be approved for the loan or credit card!

Be aware of the loan or card requirements. If you’re knowledgeable about your current credit score, you can try to only apply for the loans or credit cards that you feel reasonably sure you’ll qualify for.

Improve Other Aspects of Your Score

While credit pulls can lower your score by 3 to 5 points (per inquiry), this doesn’t have a huge effect on your credit. Your credit utilization makes up a much larger chunk of your credit score. There isn’t 1 magic percentage to hit, but the lower you keep it, the better. That means you shouldn’t be spending up to the maximum of your credit line each month.

The length of your credit history is also an important contributor to your credit score. This is important to remember when you’re considering closing some of your older credit and loan accounts.

Check Your Credit Frequently

Checking your own credit report regularly will never affect your credit and it can help you keep up to date on any major changes to your score. You can also monitor for any hard inquiries in case you need to dispute an erroneous item.

Also, keep in mind that each of the 3 reports could have different inquiries, as an inquiry is only added to the specific credit report that was checked. For example, if you check your Equifax credit report, the soft inquiry won’t be added to your Experian or TransUnion credit reports.

Consider Soft Pull Credit Card Approvals

There are a few credit card issuers that perform a soft inquiry (as opposed to a hard inquiry) when you apply for a credit card. These cards are generally targeted at those individuals with bad credit. The issuers do a soft inquiry to confirm your identity, but it’s still possible that they’ll have to do a hard inquiry if they need to gather more information.

Before you consider a card that doesn’t require a hard pull, make sure you do your research and read the fine print carefully. There are usually higher APRs and harsher penalties for missing payments attached to these cards.

Freezing Your Credit

By placing a freeze on your credit, hard inquiries can’t occur, stopping any new accounts from being opened in your name. This might be a good option for you, especially if you’ve been the victim of identity theft or a data breach.

Not sure if a credit freeze is right for you? Here’s more information about what it means to freeze your credit (and when it’s a good idea).

Hot Tip:Keep in mind that while hard inquiries can be stopped by freezing your credit — soft inquiries can’t.

Top Credit Statistics for 2021-2022

Average Credit Score by Age

As of August 2021, the average credit score for an American citizen was a respectable 716 – placing them comfortably in the “Good” bracket. This was 8 points higher than the last reported average (in October of 2020).

Interestingly, although perhaps to no great shock, it seems the more experience you have under your belt has a positive impact on your score. Statistics showed that the 3 best average scores by demographic were for those aged 70 to 79, 80 to 89, and 90 to 99.

Average Credit Score by State

When it came to the U.S. state with the best average score, Minnesota led the way with an average of 739. The top 5 best scores across the country were:

1. Minnesota – 739
2. Wisconsin – 732
3. South Dakota – 731
4. Vermont – 731
5. North Dakota – 730

Meanwhile, at the other end of the spectrum, the states which had the lowest scores on average were:

1. Nevada – 695
2. New Mexico – 694
3. Arkansas – 690
4. Oklahoma – 690
5. South Carolina – 689

Average Credit Score

Encouragingly, when it came to the bracket which most Americans found themselves in (as of April 2021), the highest percentage were those in an “excellent” score of 800 to 850. The full breakdown showed:

With trends continuing to show an improvement in scores of the average American, it will be interesting to see how long this healthy period sustains.

Additional Resources

If you’d like to find out more about hard and soft credit checks, as well as how you can optimize your credit report as best as possible, be sure to check out these handy secondary sources:

• Equifax assess 5 things that will negatively impact your credit score
• Investopedia provides tangible advice on how to improve your credit score
• The Muse provides a detailed list of actionable advice for managing your finances
• Wells Fargo provides advice on how to easily check your score
• Check out our extensive list of credit report statistics for the 2021 financial year

Profiles To Follow for Financial Advice

While you probably have a better footing for how your credit score will be affected by different checks, it never hurts to follow some reliable sources for up-to-date advice. Here are some of the best Twitter accounts to keep up with for advice on your credit report:

• Credit Score Secrets — A great profile that provides interesting new ideas on helping your credit score.
• Credit Sesame — A great resource for growing your score.
• Debt.com — A profile with resources to help people fix credit card debt, tax debt, student loan debt, credit report errors, ID theft issues, bankruptcy, and more.
• George Daunis — George shares wisdom on subjects such as boosting your credit score, home buying, being a landlord, blogging, social media, and online income generation.
• How To Raise My Credit Score — Enjoy advice from credit repair experts who can help get your finances back on track for the future ahead.
• Lexington Law — This group believes in your legal right to a fair, accurate, and substantiated credit report.
• OneScore — This profile is from a great app to check and improve your credit score for free.

Final Thoughts

Both soft and hard credit inquiries are done to assess the state of your credit. Soft inquiries are done constantly to track your own credit score or by companies to preapprove you for credit cards or loans. These won’t affect your credit.

It’s very important to monitor and manage any hard inquiries you have to your credit report. Hard inquiries are necessary to get approved for many types of loans and can even be performed by your future employer to see if you’re a good candidate. These can affect your credit score and stay on your credit report for 24 months.

20 Ways to Save Money and Stretch Your Household Budget

These days, it seems like everyone’s looking for ways to cut costs and stretch their income further. Fortunately, there are some simple steps you can take to reduce your household expenses without making radical changes to your standard of living. When combined, these small adjustments can add up to significant savings each month.

Here are 20 things you can start doing today to lower your bills, secure better deals, and begin working toward your financial goals.

1. Refinance Your Mortgage – For prime borrowers, mortgage rates are at or near historic lows. Depending on your current mortgage rate and the terms you choose, refinancing could save you a sizable amount on your monthly payments. There are fees and closing costs associated with refinancing, so you’ll need to talk to your lender to find out if refinancing is a good option for you.
2. Evaluate Your Insurance Policies – If it’s been a while since you priced home or auto insurance, it may be worthwhile to do some comparison shopping. Get quotes from at least three insurers or independent agents. Try bundling your policies to see if there’s a discount. And inquire about raising your deductible, which should lower your premium.¹
3. Bundle Cable, Phone, and Internet – You can also save money by bundling your cable, phone, and internet services together. Shop around to see who is willing to give you the best deal. If switching is too much of a hassle, ask your current provider to match or beat their competitor’s offer.
4. Better Yet, Cut the Cord on Cable – In many cases, you can save even more if you cancel your cable subscription altogether. An antenna should give you access to the major stations, and many of your favorite shows are probably available on-demand through a less expensive streaming service subscription.
5. Revisit Your Wireless Plan – You can often save by switching from a big brand to an independent, low-cost carrier. If that’s not feasible, ask your current provider for a better deal or consider downgrading to a cheaper plan.
6. Adjust Your Thermostat – Turning your thermostat up or down a few degrees can have a noticeable impact on your monthly heating and cooling costs. To maximize efficiency, change your filters regularly, and make sure your windows and doors are well insulated.
7. Use Less Hot Water – After heating and cooling, hot water accounts for the second largest energy expense in most homes.² To cut back, repair any leaks or dripping faucets, install low-flow fixtures, only run your dishwasher when full, and wash clothes in cold water when possible.
8. Lower Overall Water Consumption – To decrease your water usage, take shorter showers, and turn off the sink while you brush your teeth and wash your hands. If you don’t have a low-flow toilet, retrofit your current one with a toilet tank bank or fill cycle diverter. And irrigate your lawn in the morning or evening to minimize evaporation.³
9. Conserve Electricity – Save electricity by shutting off your computer at night and installing energy-efficient LED light bulbs. You can minimize standby or “vampire” power drain by utilizing power strips and unplugging idle appliances.⁴
10. Purchase a Home Warranty – While there is an upfront cost, a home warranty can provide some protection and peace of mind when it comes to unexpected home repair costs. Most plans provide coverage for major systems (like electrical, plumbing, and HVAC) and appliances (such as your dishwasher, stove, or refrigerator).
11. Outsource Less – From lawn care to grocery shopping to minor home repairs, we pay people to do a lot of things our parents and grandparents did themselves. To save money, try cutting back on the frequency of these services or taking some of them on yourself.
12. Prepare Your Own Meals – It costs nearly five times more to have a meal delivered than it does to cook it at home.⁵ And home cooking doesn’t just save money; it’s healthier, cuts down on calorie consumption, and can offer a fun activity for families to do together.
13. Plan Your Menu in Advance – Meal planning is deciding before you shop what you and your family will eat for breakfast, lunch, and dinner. It can help you lower your overall food bill, eliminate waste, and minimize impulse purchases. When possible, buy produce that is in season, and utilize nutrient-rich but inexpensive protein sources like eggs, beans, ground turkey, and canned tuna.
14. Plant a Garden – You can save even more on produce by growing it yourself. If you have space in your yard, start-up costs are relatively minimal. Gardening can be a rewarding and enjoyable (not to mention delicious) hobby for the whole family. And it could save you around $600 per year at the grocery store!⁶
15. Review Memberships and Subscriptions – Are you paying for services and subscriptions you no longer need, want, or can utilize? Determine if there are any that you should suspend or cancel.
16. Give Homemade Gifts – Who wouldn’t appreciate a scratch birthday cake or tin of cookies? And if you enjoy crafting, Pinterest and Instagram are full of inspiring ideas. Show your recipient how much you care with a homemade gift from the heart.
17. Minimize Your Debt Payments – The best way to reduce a debt payment is to pay down the balance. But if that’s not an option right now, try to negotiate a better interest rate. If you have a good credit score, you may be able to qualify for a balance transfer to a 0% or low-interest rate credit card. Keep in mind, the rate may expire after a certain period—so be sure to read the fine print.
18. Get a Cash-back Credit Card – If you regularly pay your credit card balance in full, a cash-back credit card can be a good way to earn a little money back each month. However, they often come with high-interest rates and fees if you carry a balance. Commit to only using it for purchases you can afford.
19. Ask for Deals and Discounts – It may feel awkward at first, but becoming a master haggler can save you a lot of money. Many companies are willing to negotiate under the right circumstances. Always inquire about special promotions or incentives. See if they are able to price match (or beat) their competitors. And if an item is slightly defective or nearing its expiration date, ask for a discount.
20. Track Your Household Budget – One of the most effective ways to reduce household expenses is to set a budget—and stick to it. A budget can help you see where your money is going and identify areas where you can cut back. By setting reasonable limits, you’ll be able to reach your financial goals faster.

Want more help getting a handle on your finances? Use the budget worksheet below to track income and expenses—and start working towards your financial goals today! Please reach out to me for a downloadable version.

WE’RE HERE TO HELP

We would love to help you meet your financial goals. Whether you want to refinance your mortgage, save up for a down payment, or simply find lower-cost alternatives for home repairs, maintenance, or utilities, we are happy to provide our insights and referrals. And if you have plans to buy or sell a home this year, we can discuss the steps you should be taking to financially prepare. Contact us today to schedule a free consultation!

 The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.

Sources:

1. Insurance Information Institute –
   https://www.iii.org/article/twelve-ways-to-lower-your-homeowners-insurance-costs
2. Department of Energy –
   https://www.energy.gov/energysaver/water-heating/reduce-hot-water-use-energy-savings
3. Money Crashers –
   https://www.moneycrashers.com/ways-conserve-water/
4. Harvard University –
   https://green.harvard.edu/tools-resources/poster/top-5-steps-reduce-your-energy-consumption
5. Forbes –
   https://www.forbes.com/sites/priceonomics/2018/07/10/heres-how-much-money-do-you-save-by-cooking-at-home/#2c53b2f35e54
6. Money –
   https://money.com/gardening-grocery-savings/

How strong is your credit? Cleaning up your credit is essential before you make any major financial moves. Having a bad score can hurt your chances of being able to open a credit card, apply for a loan, purchase a car, or rent an apartment.

It is especially important to have clean credit before you try to buy a home. With a less-than-great score, you may not get pre-approved for a mortgage. If you can’t get a mortgage, you may only be able to buy a home if you can make an all-cash offer.

Or if you do get pre-approval, you might get a higher mortgage rate, which can be a huge added expense. For example, if you have a 30-year fixed rate mortgage of $100,000 and you get a 3.92% interest rate, the total cost of your mortgage will be $170,213. However, if your interest rate is 5.92%, you’ll have to spend $213,990 for the same mortgage  – that’s an extra $43,777 over the life of the loan! If you had secured the lower mortgage rate, you could use that additional money to fund a four-year college degree at a public university.

So now that you know how important it is to maintain a good credit score, how do you start cleaning up your credit? Here, we’ve collected our best tips for improving your score.

Talk to a loan professional

You can protect your score from more damage by getting a loan professional to check your credit score for you. A professional will be able to guide you to whether your score is in the ‘good’ range for home buying. Plus, every time that you request your own credit score, the credit companies record the inquiry, which can lower your score. Having a professional ask instead ensures that you only record one inquiry. Once you know your score, you can start taking action on cleaning up your credit.

Change your financial habits to boost your score

What if your score has been damaged by late payments or delinquent accounts? You can start repairing the damage quickly by taking charge of your debts. For example, your payment history makes up 35% of your score according to myFICO. If you begin to pay your bills in full before they are due, and make regular payments to owed debts, your score can improve within a few months.

Amounts owed are 30% of your FICO score. What matters in this instance is the percentage of credit that you’re currently using. For example, if you have a $5000 limit on one credit card, and you’re carrying a balance of $4500, that means 90% of your available credit is used up by that balance. You can improve your score by reducing that balance to free up some of your available credit.

Length of credit history counts for 15% of your FICO score. If you’re trying to reduce debt by eliminating your credit cards, shred the card but DO NOT close the account. Keep the old accounts open without using them to maintain your credit history and available credit.

Find and correct mistakes on your credit report

How common are credit report mistakes? Inaccuracies are rampant. In a 2012 study by the Federal Trade Commission, one in five people identified at least one error on their credit report. In their 2015 follow-up study, almost 70% thought that at least one piece of previously disputed information was still inaccurate.

Go through each section of your report systematically, and take notes about anything that needs to be corrected.

Your personal information

Start with the basics: often overlooked, one small incorrect personal detail like an incorrect address can accidentally lower your score. So, before you look at any other part of your report, check all of these personal details:

• Make sure your name, address, social security number and birthdate are current and correct.
• Are your prior addresses correct? You’ll need to make sure that they’re right if you haven’t lived at your current address for very long.
• Is your employment information up to date? Are the details of your past employers also right?
• Is your marital status correct? Sometimes a former spouse will come up listed as your current spouse.

Your public records

This section will list things like lawsuits, tax liens, judgments, and bankruptcies. If you have any of these in your report, make sure that they are listed correctly and actually belong to you.

A bankruptcy filed by a spouse or ex-spouse should not be on your report if you didn’t file it. There shouldn’t be any lawsuits or judgments older than seven years, or that were entered after the statute of limitations, on your report.  Are there tax liens that you paid off that are still listed as unpaid, or that are more than seven years old? Those all need to go.

Your credit accounts

This section will list any records about your commingled accounts, credit cards, loans, and debts. As you read through this section, make sure that any debts are actually yours.

For example, if you find an outstanding balance for which your spouse is solely responsible, that should be removed from your report. Any debts due to identity theft should also be resolved. If there are accounts that you closed on your report, make sure they’re labeled as ‘closed by consumer’ so that it doesn’t look like the bank closed them.

Your inquiries

Are there any unusual inquiries into your credit listed in this section? An example might be a credit inquiry when you went for a test drive or were comparison shopping at a car dealer. These need to be scrubbed off your report.

Report the dispute to the credit agency

If there are major mistakes, you can take your dispute to the credit agencies. While you could send a letter, it can be much faster to get the ball rolling on resolving a mistake by submitting your report through the credit agency’s website. Experian, Transunion and Equifax all have step-by-step forms to submit reports online.

If you have old information on your report that should have been purged from your records already, such as a debt that has already been paid off or information that is more than 7 years old, you may need to go directly to the lender to resolve the dispute.

Follow up

You must follow up to make sure that any mistakes are scrubbed from your reports. Keep notes about who you speak to and on which dates you contacted them. Check back with all of the credit reporting companies to make sure that your information has been updated. Since all three companies share data with each other, any mistakes should be corrected on all three reports.

If your disputes are still not corrected, you may have to also follow up with the institution that reported the incident in the first place, or a third-party collections agency that is handling it. Then check again with the credit reporting companies to see if your reports have been updated.

If you can keep on top of your credit reports on a regular basis, you won’t have to deal with the headaches of fixing reporting mistakes. You are entitled to a free annual credit report review to make sure all is well with your score. If you make your annual credit review part of your financial fitness routine, you’ll be able to better protect your buying power and potentially save thousands of dollars each year.

How to clean up your credit now

Does your credit score need a boost so you can buy a home? Get in touch with me. I can connect you with the right lending professionals to help you get the guidance you need.

Traditional mortgage fraud includes situations in which homebuyers and/or lenders falsify information to obtain a home loan. Homebuyers should never sign mortgage documents that have incomplete or inaccurate information.for the full story on mortgage fraud

But the American people have something on their side the fraudsters don’t: the force of the largest coalition of federal, state and local partners ever assembled to combat fraud.

The Financial Fraud Enforcement Task Force’s mission is broad, because the problem is broad, and the task force is working tirelessly to combat these and future scams to protect the American people.

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