Does Changing Banks Affect Credit Score?

A credit score is a numerical representation of an individual’s creditworthiness. It plays a significant role in various financial aspects, from securing loans and credit cards to influencing insurance premiums and even housing applications. This article clarifies whether changing banks directly impacts one’s credit score and outlines related considerations.

Direct Impact on Credit Score

Opening or closing checking and savings accounts generally does not directly affect an individual’s credit score. Credit scores, such as FICO Scores and VantageScores, are primarily based on information in credit reports maintained by the three major credit bureaus: Experian, Equifax, and TransUnion. These reports detail credit history, including loans, credit cards, payment history, amounts owed, and length of credit history.

Traditional bank accounts like checking and savings accounts are not credit products and are not reported to credit bureaus. Banks utilize specialized reporting agencies, such as ChexSystems, to track banking activity. Information reported to ChexSystems does not directly influence FICO or VantageScore credit decisions.

Indirect Impacts and Related Considerations

While changing banks does not directly impact a credit score, related financial activities during a transition can indirectly affect it. Failing to manage the transition carefully can lead to consequences on credit reports.

One common indirect impact arises from failed payments. If automatic payments for credit cards, loans, or other bills are linked to the old bank account and not updated promptly, these payments could be missed. A single late payment reported to credit bureaus can negatively affect a credit score, potentially reducing it by several points. Creditors typically report payments as late if they are 30 days or more past their due date. These can remain on a credit report for up to seven years.

Another consideration involves severe overdrafts or account closures due to sustained negative balances at the old bank. If a bank account goes into a significant negative balance and the debt is not repaid, the bank might send it to a collections agency. Once a collection account appears on a credit report, it can substantially damage a credit score and remain visible for seven years. This credit impact results from collection activity, not bank account closure.

Applying for new credit products, such as a credit card or personal loan, at a new bank will impact a credit score. Each application typically results in a hard inquiry on the credit report, causing a slight, temporary dip. Opening new credit accounts can also affect the average age of accounts and credit mix, factors in credit scoring models. These effects are tied to the new credit application, separate from changing checking or savings accounts.

Steps to Avoid Negative Credit Implications

To avoid potential indirect negative impacts on your credit score when changing banks, proactive financial account management is important. A meticulous approach ensures a smooth transition.

Compile a comprehensive list of all direct deposits and recurring automatic payments. This list should include income sources like payroll, and outgoing payments such as utility bills, rent or mortgage, loan installments, credit card bills, and subscription services. Systematically update each with your new bank account information to prevent missed payments or service interruptions. Confirming updates directly with each payee is also prudent.

Keep your old bank account open with a small balance for a transitional period, perhaps one to two months. This grace period allows time for forgotten automatic payments or deposits to clear from the old account. This practice helps ensure no transactions are missed or returned unpaid, avoiding fees or negative reporting. Once confident all transfers and updates are complete, you can officially close the old account.

Throughout the transition, consistently monitor both old and new bank accounts for unexpected activity or missed transactions. Regularly review your credit reports from each of the three major credit bureaus. You can obtain a free copy of your credit report annually through AnnualCreditReport.com. Monitoring these reports helps identify and address any discrepancies or negative marks that might arise during the bank change process.