Opening a new bank account can have a lot of benefits, but does it influence your credit score?
With around 27% of Brits feeling that an app is sufficient when dealing with their banks, and one in four owning a digital-only bank account in 2022, more people are looking at opening bank accounts online.
If you've recently applied for a personal loan or a new credit card, you'll notice a small drop in your credit score - and the same could happen if you open a new bank account.
We look at how bank accounts may affect your credit score and how to make sure your credit report looks good.
Opening a new bank account will only hurt your credit score if a hard credit check is done. This is typically the case with current accounts or where an overdraft is involved.
Even if this is the case, the slight drop will only be temporary.
However, if you do this too often, or open multiple bank accounts in a short period of time , your credit score may not have time to recover.
Also keep in mind that having a joint bank account could also impact your credit score, especially if the other account holder has a bad credit history.
Opening savings accounts typically won't hurt your credit as most banks only run a soft credit check that is not recorded on your credit report by credit reference agencies.
Only in some cases, where a hard credit search is required, will it affect your credit score.
Current accounts typically won't hurt your credit score if you open a current account to handle your day-to-day transacting. It's unlikely that your bank will do a hard credit inquiry unless you require an overdraft or apply for a credit card at the same time.
Before submitting an application, find out from the bank what kind of credit inquiry they will make if you're concerned about your credit score when opening a new account.
Changing banks won't show up on your credit report, but the credit check the previous bank did will. It can often be visible on your credit report for 12 to 24 months.
The application process for some no-frills current accounts may not include a credit check. These are frequently referred to as basic bank accounts and are typically accounts without an overdraft facility.
In the event of basic accounts without an overdraft, a soft credit check may also be done - which has no effect on your credit score. Banks can use this as an additional method of verifying that you are who you say you are.
Knowing your personal credit score and report is a great idea, and often free of charge, so you can see how your credit profile looks to potential lenders.
You might be opening a bank account to apply for a credit card since credit cards are a crucial tool for building credit. The hard inquiry the bank makes when you apply for a new credit card may cause your score to drop temporarily, but adding a new credit line may have other effects on your credit score, like:
Changing your credit utilisation ratio
Increasing the types of credit on your name
Building your credit history
In addition to the initial hard inquiry, how you use your line of credit and handle your monthly payments will determine whether it has a good or bad impact on your credit score.
Your credit score will slightly decrease with a hard credit check, although this drop is typically short-lived. Credit checks are a common occurrence in practically all credit files because most people need to obtain a mortgage, credit card, or loan at some point.
However, having your credit profile checked for a new bank account won't have nearly the same negative effect as missing payments or not paying bills.
The amount of credit you already have available to you will be taken into account by lenders if you apply for an overdraft with your new bank account. If you already have a high credit limit it will be harder for you to get even more from the bank.
While moving banks, keep in mind that some may offer you the chance to apply for a credit card as well. This could result in a second credit check and increase your credit availability. Your chances of getting a loan will be affected by both of these aspects.
It's a good idea to wait before you change banks if you've made a recent loan application or plan to apply for one in the near future.
Many lenders view multiple credit checks in a short period of time as a warning sign, so switching banks frequently may have a negative effect on your ability to have future loans approved.
Apart from the initial checks by banks when you open an account, here are a few other ways in which bank accounts can have an impact on your credit profile.
While bank account information isn't included in your credit report, overdrafts are.
This is because a bank overdraft is seen as a credit product, similar to a loan or credit card. If your account is regularly overdrawn, it will have an impact on your credit utilisation rate - which refers to how much of your available credit you're using.
Frequently overdrawn bank accounts will indicate to potential lenders that you rely on credit to make ends meet and it can prevent you from getting credit or taking out a loan.
Closing a bank account typically has no effect on your credit score. But if you're not careful, there are some ways in which closing a bank account can hurt your credit score.
You technically have an unpaid line of credit with a bank if you close an overdrawn account. Overdrafts often have short payback periods, and if you don't repay the amount on time, it can be transferred to a collection agency, which will harm your credit report.
Additionally, cancelling an old credit card could harm your credit score if the card was previously linked to a bank account. Even if you don't use the card, it could help your credit score by showing that you have had credit for a long time but haven't used it (a lower credit utilisation rate).
Your choice in banks does not affect your creditworthiness and lenders do not look at this when considering a loan or credit application.
Yes, and it won't affect your credit score. Getting a better interest rate is often one of the main reasons why people switch banks.
You will still need to undergo a credit check for each of your bank accounts so it will have the same effect as switching banks.