Why is it important to have good credit?   

Lenders want to know how you have handled credit in the past to determine how well you are likely to handle it in the future.


Credit card issuers, auto dealerships and mortgage lenders will check your credit score before deciding how much they are willing to lend you (risk evaluation) and at what interest rate.


Insurance companies, landlords and employers may also look at your credit report to see how financially responsible you are before issuing an insurance policy, renting out an apartment or giving you a job.



If you have a poor credit score (credit rating): 


  • You may need to obtain a co-signer to be approved.
  • You may have to pay a higher interest rate.
  • You may not be able to rent the apartment or get the job you want.
  • You may be denied credit. 



What is a credit score, rating and credit report?


Credit reports are a common method for lending institutions to evaluate your credit usage and to determine if you are a high risk.  


The names are all somewhat interchangeable in modern language.  To split hairs; A Report is referring to the actual report, and score and rating referring to the information on the report. 



What is considered to be an excellent credit score?


Credit scores scale from 300 to 900.  Over 690 is considered Good. Over 800 is Excellent.  Under 580 is Poor, and you are going to have to put some work in to fix that.  


 The two common types of reports are referred to as a soft check, or hard check, sometimes called a soft enquiry or hard enquiry. 


Some people are reluctant to check their credit reports because they are concerned that doing so may impact their credit scores. 


While pulling your own credit report does result in an inquiry on your credit report, (known as a soft credit check, pull or enquiry) it will NOT affect your credit score. 


In fact, knowing what information is in your credit report and checking your credit score may help you get in the habit of monitoring your financial accounts.  


In some cases, you can have older negative information removed from your credit report upon request.  It is also recommended to have any incorrect information updated. 

One of the ways to establish smart credit behavior is to understand how inquiries work and what counts as a “hard” or “soft” inquiry on your credit report.” 


What are hard credit inquiries?


According to Equafax  a hard credit inquiry (also known as a hard credit check or pull) is “When a lender or company requests to review your credit report as part of the loan application process, that request is recorded on your credit report as a hard inquiry, and it usually will impact your credit score. ”  


They go on to say; “Multiple hard inquiries within a certain time period for a home or auto loan are generally counted as one inquiry”  


What are soft credit checks? (or soft credit inquiry)


An example of pulling a soft credit report is when you use a service or mobile app to check your credit score, it will not impact your score, it is considered a Soft Credit Check and not attached to any specific lending request.  This also applies when you authorize a potential employer, or landlord to do a soft credit check (pull), it will not impact your score. 


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Article by:  Randal L.
Article by: Randal L.

Randal L. is Personal Finance Blogger. His interests include Day Trading, Investing Strategies and Technology. His other passion is Riding his Classic BMW or Indian Scout Motorcycles through the local Wine Country, near his home in Kelowna, BC, Canada.

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