Having a savings account doesn’t directly improve your credit score, but having a healthy balance can help you create a solid foundation to building one.
More specifically, the better your financial situation—which could include having a good chunk of savings in your bank account—the more likely you are to be able to afford loan payments, which can help you boost your score. Plus, having more in savings shows lenders you’re most likely not borrowing more than you can afford.
Let’s take a look at what affects your credit score, and how maintaining savings can help you build it. Here, you’ll learn more about:
• How having a savings account can impact your credit score
• Which factors affect your credit score
• How to grow your savings account balance.
Understanding Your Credit Score
Your credit score is a three-digit number, ranging from 300 to 850, that is calculated by the big three reporting agencies, Equifax, Experian, and TransUnion. While your score may vary a bit depending on what model is used to come up with the number, here is how the figure typically stacks up, from a fair credit score to an excellent one:
• 580 to 669: Fair
• 670 to 739: Good
• 740 to 799: Very good
• 800 and higher: Excellent
If you are not sure of your score, you can get a free credit report once a year from each of the three reporting agencies. It’s wise to look over your report for any inaccuracies and work to correct them as soon as possible.
As you review your score, know that it reflects your credit behavior in the past and indicates how good a credit risk you are in the future. Your number will reflect whether you have a history of paying bills late or have defaulted on payments, along with other financial data. Keep reading to learn more about what can improve or hurt your number.
Factors That Affect Credit Score
Your credit score can play a big role in your qualifying for loans at the best possible rate, as well as getting approved for an apartment rental. Here, take a look at some of the key factors that influence your credit score:
Payment History
One of the biggest factors in calculating your credit score is whether you make on-time payments. In fact, it accounts for 35% of your FICO credit score, which is what most lenders use when assessing your credit application.
One late or missed payment could negatively affect your score, as lenders want to be sure you can make on-time loan payments.
Credit Utilization Ratio
Another important factor is your credit utilization ratio, which means how much of your available credit you are using. This measure determines 30% of your FICO score.
Let’s say you have a credit card with a limit of $10,000. Many experts will say that you should only carry a balance of 30% of your credit limit or less, which would be $3,000. Other financial advisors point to the fact that those with excellent credit scores use, on average, just six percent of their credit limit. Using the $10,000 credit limit again, that would be a balance of only $600.
Here’s why these numbers matter: If your ratio or percentage is high, that can mean you are stretched thin financially. This in turn can possibly make you look like a risky prospect to a potential lender. A high credit utilization ratio could also negatively impact your credit score, taking your number still lower.
Credit History
The length of time you’ve held onto certain credit accounts can affect your credit score. Though it’s not a major factor (it only accounts for 15% of your FICO score), having a longer credit history can help you increase your credit score.
FICO specifically looks at the age of your oldest account, the average age of your credit accounts, and the age of your newest account. It also looks at how long you’ve held certain accounts and how long it’s been since you’ve used ones.
This is something to keep in mind when you are considering closing accounts. If you often open and then close, say, credit cards, or do the same with bank accounts when you see new offers that appeal to you, it could have a negative result on your credit score. You are not showing the reporting bureaus that you can responsibly use credit over a long period of time.
Credit Mix
Your credit mix accounts for 10% of your credit score and refers to the types of credit accounts you have. Credit scores typically look at debt such as:
• Revolving accounts. These give you flexibility regarding how much you pay each month, and include credit cards, home equity line of credit (HELOC), retail store cards, and similar accounts.
• Installment accounts. These are the accounts that have a fixed amount you pay every month, such as a student loan, car loan, and/or mortgage.
The better the “mix” or credit types you have, the higher your score could be, as it shows you’re responsible with a variety of accounts. However, since this only contributes 10% of your total credit score, it is not a problem if you don’t currently hold a wide array of accounts. If, say, you only have revolving accounts in your credit history, you do not need to hurry and take out, say, a car loan.
New Credit Accounts
How often you apply for and open new accounts typically contributes 10% of your credit score. The more accounts you open or apply for within a short span of time, the more risky you appear. It can look as if you’re not financially stable and are rushing to access more credit. This “riskiness” could be compounded if you don’t have a long credit history.
How a Savings Account Could Help You Maintain Your Credit Score
How much money you have in your savings account won’t directly boost your credit score. Even if you have a lot of money in a high-yield savings account, bringing in some steady interest income, this fact doesn’t get sent to the credit reporting agencies. Therefore, it won’t increase your credit score.
💡 Get a closer look at how high-yield savings accounts work.
By the same token, how you manage your savings account shouldn’t lower your credit score either. Even if you have overdrafted a savings account, that information won’t be communicated to the credit reporting agencies unless your debt is turned over to a collection agency.
However, there is the possibility that a savings account could help you maintain a positive credit score. Here are some examples of how a healthy savings account (any of the common types of savings account is fine, by the way) could help:
• Having money in a savings account means you’re less likely to make late bill payments.
• Maintaining a savings account could mean you’re better prepared for emergencies, making you less likely to apply for new loans.
• You’re more likely to pay off your credit card balance each month if you have a savings account, which could help you maintain a lower credit utilization ratio.
• With a savings account, you could rely on using your credit card less, which could in turn prevent a high balance and credit utilization ratio.
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Tips for Growing Your Savings Balance
Having a large amount of money in a savings account isn’t going to automatically send your credit score soaring. However, it’ll help your financial situation overall, and raising your credit score could be a byproduct.
Having enough cash to pay your expenses, plus a buffer, is a smart idea. What’s even better is to have an emergency fund —a good rule of thumb is to aim for at least three to six months worth of expenses—so you don’t have to rely on credit if an emergency happens.
In other words, having more money could mean you’ll tend to borrow money less. You may well use your plastic less often and therefore will lower the risk of falling behind on payments.
If this sounds like a win-win to you, here are some ways you can save more with a savings account:
• Cut back unnecessary expenses (say, subscribing to every possible streaming service or eating out frequently) and deposit the money saved into your account
• Open a separate savings account. Many people spend whatever they see in their checking account.
• Set up automatic withdrawals to a savings account, perhaps on payday, to again siphon money from checking before it gets spent. What percent of your paycheck to save depends on your personal situation. For instance, one person might have significant student loans to repay; another might not. It’s fine to start small; $20 can be a good starting point.
• Work a side hustle temporarily to earn more income. Options include driving for a ride-share service, walking dogs, or selling items that you craft.
• Save your tax return and other additional income streams like bonuses rather than spending them.
• Sell gently used items that you no longer need or use.
• Refinance loans to a lower interest rate and set aside the difference between your new and old monthly payments in your savings account.
• Open a high-yield savings account that offers a higher interest rate than your current one; your money should grow faster that way.
The Takeaway
Having money in a savings account won’t directly build your credit score. The three-digit number is more a reflection of how well you have used credit in the past. It indicates whether, say, you have paid your bills on time and not overextended yourself with too much borrowing.
However, having enough cash in savings can possibly help your credit score in other ways. It can be a cushion that allows you to make on-time credit payments, which is a major factor in how your credit score is calculated. In addition, a healthy savings account, even if it doesn’t impact your credit score, is an important step towards financial wellness and stability.
If you want to grow your savings, consider banking with SoFi. Open a new online bank account with direct deposit, and you’ll earn a competitive APY. You can save money with SoFi too, because you won’t pay any of the usual banking fees. Not spending on those charges can mean more money in the bank for you.
FAQs
Can you build credit with a savings account?
Having a savings account won’t directly affect your credit score. However, having enough money in a savings account can indirectly help your score. Having ample cash could mean you’re more likely to make on-time payments and not need to take out multiple loans.
Do banks run credit checks for savings accounts?
Banks tend to look at reports from ChexSystems and similar agencies when a customer applies for an account. These organizations gather information on your past use of banking products. If a bank does decide to do a credit check, they typically perform a soft credit inquiry with the credit-report agencies. These inquiries should not affect your credit score.
Is it worth it to have a savings account?
Having a savings account is useful in many areas of your financial life, such as creating an emergency fund. Unlike traditional checking accounts, savings accounts typically pay interest, which is another valuable perk. (If you live in Canada, you might look into tax-free savings accounts, which can help you stash pre-tax dollars.)
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SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 8/9/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..
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