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Does Switching Bank Accounts Affect Your Credit Score?

By Rebecca Lake · May 25, 2022 · 6 minute read

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Does Switching Bank Accounts Affect Your Credit Score?

Most of the time, changing banks won’t affect your credit score. Which is a good thing, because during your banking life, you might consider a switch if you’re looking for a better rate on savings or want to pay fewer fees. The facts are, opening new accounts generally doesn’t trigger a hard check of your credit. What’s more, checking and savings account information isn’t reported to the credit bureaus. So your credit score probably won’t shift.

Now, that said, there are indeed some instances where banking activity may influence credit scores indirectly. So let’s take a look at how things play out when you are changing bank accounts and answer the question, “Does switching bank accounts affect my credit score?” We’ll cover, among other topics, the following:

•  Is switching banks visible in your credit file?

•  Will changing banks affect your credit score?

•  Can switching banks impact your chances of getting a loan?

Ready? Let’s learn more about this important aspect of your financial life.

Will Switching Banks Be Visible on Your Credit File?

Does switching bank accounts affect credit score ratings? Probably not, because banking history related to checking and savings accounts typically doesn’t show up on your credit reports.

Here’s what does show up on your credit file, according to MyFICO:

•  Personal information, such as your name, date of birth, and Social Security number

•  Credit accounts, including creditor names, account numbers, balances, and payment history

•  Credit inquiries

•  Public records and collection accounts

Information relating to your credit accounts, credit inquiries, and public records or collections influence your FICO credit score calculations. So what is a FICO score?

In simple terms, it’s a three-digit number that reflects how responsibly you use credit. Lenders can check your FICO credit scores when deciding whether to approve you for loans or lines of credit. The higher your score, the more likely you are to be approved for credit, and you may even be granted lower interest rates than those with less stellar scores.

Does Switching Current Accounts Affect Your Credit Score?

Opening a new bank account typically does not affect your credit rating, as long as the account that’s closed is in good standing. There may be credit score implications, however, if you’re shuttering the account with a negative balance, there’s an unpaid loan, or you’re closing a credit card with the bank at the same time. Here’s a little more to consider about what gets shared with the big three credit reporting agencies (Equifax, Experian, and TransUnion):

•  Negative bank account balances can occur as a result of overdrafts. An overdraft means that your bank has processed transactions on your behalf that exceed your available balance. The bank can also charge you one or more overdraft fees for covering those transactions.

  If you’re switching accounts with an overdraft in place, the bank may transfer that account to a collection agency. The collection agency could then take action against you, including reporting the delinquent debt to the credit bureaus and suing you for the balance due. Delinquencies, collection accounts, and judgments can all show up on your credit reports and harm your score.

•  You could experience the same situation if you have a loan outstanding with the bank at the time you close your account and fail to pay. You might miss a payment, for example, if you had previously set up automatic payments from your now-closed account to the loan. Those could be reported to the credit bureaus, along with late or missed payments that occur for any other reason.

•  If you close a credit card at the same time as you switch bank accounts, it could negatively impact your credit score. Here’s why: Closing credit cards can affect your credit utilization ratio. This ratio measures how much of your available credit you’re using at any given time. A lower credit utilization ratio is generally better for credit scoring. Closing an account can shrink your overall credit limit, which in turn can increase your utilization ratio. Your score might take a hit.

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Will Switching Banks Affect Your Chances of Getting a Loan?

Switching banks might affect your chances of getting a loan if your score drops for any reason when moving your account. Again, this could happen if you’re closing an account with an overdraft that you must pay, a past due loan, or if you’re shutting down one or more credit cards.

Your odds of being approved for a loan may also be affected if your new bank performs a hard inquiry as a condition of opening an account. Hard inquiries are requests for your credit history that are reported to the credit bureaus. But this usually doesn’t happen unless the financial institution has reason to be concerned about your application. Typically, when you open checking and savings accounts, banks do credit checks that are soft inquiries. These have no credit score impact.

If you’re interested in getting a debt consolidation loan, personal loan, or any other type of loan, you may want to wait until after you’re approved to switch banks if you’re concerned about credit score impacts. That way, you won’t run the risk of having any unexpected hard inquiries showing up on your credit and possibly lower your score.

Recommended: What’s the Difference between a Hard and Soft Credit Inquiry?

Can Your Credit Score Be Affected If You Open Multiple Bank Accounts?

Opening multiple bank accounts shouldn’t affect your credit scores unless you’re subjected to a hard credit check (as described above) each time. As mentioned, your credit scores are based on credit accounts, such as credit cards or loans, rather than bank accounts. Things like how much money you keep in checking and savings or how many bank accounts you have don’t affect your credit rating. What does matter to your score is how good a record you have of borrowing and repaying funds in a timely fashion.

While your banking history isn’t sent to the credit bureaus, it will usually be reported to ChexSystems, which is a check verification and consumer credit reporting system specifically for banks. ChexSystems tracks information on closed accounts, including accounts closed with overdrawn balances. Negative ChexSystems information could result in a bank denying you an account, though it wouldn’t affect your credit score.

Does Opening and Closing Bank Accounts Hurt Your Credit Score?

Opening and closing bank accounts shouldn’t hurt your credit score unless you’re dealing with delinquent loans, collection accounts, or closed credit card accounts. If you’re opening new accounts and applying for credit cards at the same time, that could also hurt your score if it means multiple hard inquiries. Here’s why: It looks as if you are shopping around for a lot of new lines of credit, which can make you look like a risky customer.

Steps That May Help Repair Bad Credit

Now, let’s consider how long does it take to repair credit if you have unpaid bank balances or loans? Generally, negative information can linger on your credit reports for up to seven years. The most immediate credit score impacts are felt in the first year or two. After that, the impact begins to fade though negative marks will remain on credit reports.

You can take steps that could improve your credit score on the off chance that opening or closing credit accounts while switching bank accounts decreases your rating. Some of the best ways that may raise your score include:

•  Consistently paying bills on time

•  Paying off debt balances, or keeping your credit utilization ration under 30% (preferably to 10% or lower)

•  Keeping older credit accounts open to extend your credit history

•  Reviewing your credit reports (you can get one free report per agency each year) for errors. When you correct any mistakes on your report, your score may well rise.

The Takeaway

Opening new checking or savings accounts could be a good move if your current bank no longer meets your needs. But before you do so, it’s wise to know the impact that this shift can have on your credit score, the measure of your credit worthiness. In most cases, your rating won’t decline, but in a few instances, it could. Understanding these situations can help you avoid them. If you support your credit score in this way, you’re taking steps to protect your financial health.

Another way to boost your financial wellness: Banking with SoFi, an online bank that helps your money grow faster. We offer a hyper-competitive 1.25% APY when you open Checking and Savings with direct deposit. And we don’t charge any of the usual account fees, so you don’t get hit with overdraft, monthly, or minimum-balance charges. One more perk: access to your paycheck up to a full two days early.

Come bank better with SoFi.

FAQ

Is switching banks bad for your credit?

Switching banks isn’t usually bad for your credit since bank accounts don’t show up on consumer credit reports. If, however, you closed an account with a negative balance that was given to a collection agency, your score could be lowered. Typically, though, your banking history will be reported to ChexSystems, which is a check verification and credit reporting system for banks, not the credit scoring agencies.

Is switching bank accounts a good idea?

Switching bank accounts can be a good idea if it allows you to get a better interest rate on savings (and possibly checking), reduces banking fees, or gives you more perks and better access to your money. Before changing banks, it’s helpful to compare features, benefits, rates, and fees to find the right banking option for your needs.

Will getting a new bank account affect my credit score?

Getting a new bank account should not affect your credit score unless your new bank performs a hard check of your credit or you’re closing accounts with overdrawn balances or outstanding loans in place. Closing a credit card account at the same time you close a bank account could also hurt your credit score if it increases your credit utilization ratio.


Photo credit: iStock/Passakorn Prothien

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