Does Opening a Checking Account Affect Your Credit Score?

Opening a checking account is often the first step towards financial independence, but have you ever wondered if opening one can affect another crucial part of your financial footprint—your credit score?

Simply put, opening and using a checking account is unlikely to affect your credit score, especially if you use your account responsibly. Actually, opening and using a bank account wisely can even be used to improve your credit score.

In this blog, we’ll explain why everyday activity in your checking account has little effect on your creditworthiness but we’ll also take a look at some of the situations when it can affect your score. We’ll also consider some of the ways banks and credit unions monitor your account and how you can use this to your advantage. Read on to learn more.

Bank on It: Checking Accounts and Your Credit Score

Your checking account is your financial clearing house. It’s the place where your paycheck lands and from where you distribute money to bills, regular or discretionary expenses, and savings. It’s really all about spending what you already have.

Your credit score, on the other hand, is focused on your debt. Credit bureaus pay close attention to how you pay your mortgage, pay back loans, and manage a credit card account. That means regular activities like opening your account and making deposits and withdrawals will not affect your credit scores.

In reality, your credit score rarely has anything to do with your checking account and when it does, it’s usually because it involves—or might involve—debt.

Here’s how that might work:

Hard vs Soft Inquiries:

A soft “pull” or inquiry on your credit report reveals only your credit score. Banks and credit unions might do this as an added precaution when reviewing your application for opening a checking account. However, a hard “pull” will reveal your actual credit history, including any past or existing accounts of yours that have been sent to collections.

Very rarely, a bank or credit union will run a hard inquiry as an extra check before letting you open an account. If they do, this will knock your credit score down for a few months.

Signing Up for Overdraft Protection

Signing up for overdraft protection is more likely to trigger a hard inquiry on your account because your financial institution considers this a type of borrowing. They’ll want to check for a history of delinquent accounts or negative account balances before approving you. The direct effect of this will again be small and should disappear after 12 months.

Failing to Pay Overdraft Fees

Your credit score will be affected negatively if you fail to set up overdraft protection and then overdraw your account. Acting quickly to bring your balance to the black within 24 hours might prevent it from showing up on your credit history. If you don’t, your account might be turned over to a collections agency, which will hurt your credit even more.

Closing an Account With a Negative Balance

If you close an account with a negative balance, your financial institution may send it to a collections agency. If that happens, the debt will likely be reported to the credit bureaus and will probably affect your score. This can happen easily if your bank applies a fee after you ask them to close an account.

ChexSystems and Checking Accounts

While opening a new checking account won’t affect your credit history if you are using it responsibly, banks do monitor activity on your checking and savings accounts in other ways.

Almost all of your banking history is monitored by credit monitoring agencies like ChexSystems and Early Warning System (EWS). These agencies used a rating system similar to your credit score to look for risky behavior in managing the money in your bank accounts.

Activity that credit monitoring agencies are likely to flag includes:

Repeated overdrafts and bounced checks
Repeatedly losing your debit card or checks
Suspected debit and ATM card fraud or abuse
Suspected identity theft activity
Multiple account applications

Maintaining Healthy Credit and ChexSystems Reports

Building healthy money management habits can help to protect your good credit. You can prevent your checking and savings account activity from harming your credit score or ChexSystems report by:

Paying all your bills and fees on time. Keeping track of payment due dates is the best way to avoid this problem.
Monitoring and correcting your reports. You can download a free copy of your credit report here and a free copy of your ChexSystem report here.
Avoid opening a bank account too soon after opening another. Many pulls on your credit report in a short time may be flagged up as potentially fraudulent or risky behavior.

Believe it or not, managing the money in your checking account wisely can actually help improve your credit score. Services like ExperianBoost and UltraFICO® allow credit bureaus to track your on-time bill and rent payments, to check average balances and transaction frequency in your accounts directly, and to analyze this information to boost your credit score.

This is very useful to renters, who otherwise miss out on the credit boost that homeowners get for paying down a home loan over time. It’s also very helpful to people just starting to build a credit history, because it allows them to establish their creditworthiness sooner.

Checking Accounts That Work for YOU

Financial independence starts with your checking account. Being smart about your money helps you build for the future by saving and helping to protect (or even improve) your credit score.

At Baton Rouge Telco, we offer our members three different checking account options: