Does Having Multiple Savings Accounts Hurt Your Credit?
Unsure if your savings strategy impacts credit? We clarify how multiple savings accounts relate to your credit score and real factors that shape it.
Having multiple savings accounts does not negatively impact one’s credit score. Savings accounts are considered assets, representing money an individual owns, rather than debt. This distinction is fundamental to understanding why these accounts do not factor into credit calculations.
Understanding Credit Scores and Reports
A credit score provides a numerical representation of an individual’s creditworthiness, indicating the likelihood of repaying borrowed funds. Companies like FICO and VantageScore calculate these scores, which typically range from 300 to 850. Lenders use these scores to assess risk when considering loan applications and setting interest rates.
A credit report serves as a detailed record of an individual’s credit history. It compiles information about past and current credit accounts, including account type, credit limits, balances, and payment history. These reports primarily track borrowing and repayment behaviors.
The Nature of Savings Accounts
A savings account functions as a deposit account held at a financial institution, primarily used for holding funds and typically earning interest. These accounts are distinct from credit products because they represent assets—money belonging to the account holder—rather than liabilities or debt.
Financial institutions generally do not report the balances or activity of savings accounts to the major credit bureaus. Deposits, withdrawals, or the total amount held in savings accounts do not appear on an individual’s credit report. Checking accounts also fall into this category of non-reported deposit accounts.
Direct Impact of Savings Accounts on Credit
Having one or multiple savings accounts has no direct impact on an individual’s credit score. Savings accounts are deposit vehicles, not forms of credit or debt. Credit bureaus focus exclusively on borrowing and repayment activities when compiling credit reports and calculating scores.
Opening a savings account typically does not involve a hard credit inquiry, which can temporarily lower a credit score. While some financial institutions might perform a soft inquiry to verify identity, these checks do not affect one’s credit score. Savings accounts are not reported to credit bureaus, so their existence or activity does not become part of the credit history used for scoring.
Financial Behaviors That Influence Credit
Credit scores are primarily determined by an individual’s financial behaviors related to borrowing and repayment. Payment history accounts for 35% of a FICO score, emphasizing timely bill payments. Amounts owed, also known as credit utilization, represents about 30% of the score, reflecting the proportion of available credit being used. Maintaining low credit utilization, ideally below 30% of available credit, supports a stronger score.
The length of an individual’s credit history, including the age of the oldest account and the average age of all accounts, contributes approximately 15% to the score. New credit, or recent applications for credit, accounts for about 10% of the score, as numerous inquiries in a short period may signal increased risk. Finally, the credit mix, or the variety of credit accounts held (e.g., credit cards, installment loans), makes up the remaining 10%, demonstrating an individual’s ability to manage different types of debt.