Does Opening a Savings Account Hurt Your Credit?
Separate fact from fiction: Does opening a savings account hurt your credit? Grasp how deposit accounts relate to your credit score.
Opening a savings account does not negatively impact your credit score. This is a common concern, but savings accounts are fundamentally different from credit products. Understanding how these accounts function and how credit scores are determined can help alleviate such worries.
How Savings Accounts Appear on Credit Reports
Savings accounts are classified as deposit accounts, not credit accounts. Financial institutions do not report them to the three major consumer credit bureaus: Equifax, Experian, and TransUnion. Credit reports track borrowing and repayment behaviors, focusing on how individuals manage debt.
Because savings accounts are not reported to these bureaus, their activity, including deposits or withdrawals, does not directly influence your credit score. Your savings account balance will also not appear on a credit report.
Inquiries When Opening a Savings Account
When you apply for a savings account, the financial institution may perform an inquiry into your financial background. This is typically a “soft inquiry.” Soft inquiries are used for identity verification or pre-approvals for non-credit products.
A soft inquiry does not affect your credit score and is not visible to other lenders. This differs from a “hard inquiry,” which occurs when you apply for credit products like loans or credit cards. Hard inquiries can temporarily lower your credit score by a few points, though their impact usually lessens over time and they remain on your report for up to two years.
What Truly Affects Your Credit Score
Several factors influence a credit score, reflecting an individual’s borrowing and repayment habits. Payment history is a primary factor, indicating whether bills are paid on time. The amounts owed, also known as credit utilization, also play a significant role; this is the amount of debt an individual carries compared to their available credit limits.
Other factors include the length of credit history, which considers how long accounts have been open, and new credit, which refers to recent applications for credit. The mix of different credit types, such as installment loans and revolving credit, also contributes to the score.
Clarifying the Difference: Savings Versus Credit
Confusion can arise because banks offer both savings accounts and credit products. The fundamental distinction lies in their purpose: savings accounts are designed for depositing and holding money, potentially earning interest.
Conversely, credit products involve borrowing money that must be repaid, often with interest. For example, an overdraft line of credit linked to a checking account or a secured credit card that uses savings as collateral are credit products. These credit-related features would appear on a credit report and influence your score.