Does Switching Bank Accounts Affect Credit Score?

Switching bank accounts is common for consumers seeking better financial services. A frequent question is whether this change impacts one’s credit score. While opening or closing checking or savings accounts generally has no direct effect, certain banking activities can indirectly influence creditworthiness. Understanding this distinction is important for maintaining a healthy financial profile.

Bank Accounts Versus Credit Scores

Bank accounts, such as checking and savings accounts, fundamentally differ from credit products. These accounts are designed for depositing funds, managing transactions, and saving money, rather than for borrowing. Financial institutions typically do not report the routine activity of these deposit accounts to the three major credit bureaus: Experian, Equifax, and TransUnion. This means opening or closing these accounts does not directly appear on your credit report or factor into credit score calculations.

Credit scores are built upon an individual’s borrowing and repayment history, reflecting how reliably borrowed money is managed, such as credit cards, mortgages, and auto loans. Since bank accounts do not involve borrowing money, their normal operation, including balances, deposits, and withdrawals, is not considered by credit scoring models. Consequently, switching banks for your deposit accounts does not directly impact your credit score.

Indirect Connections Between Banking and Credit

While direct impacts are uncommon, several scenarios involving banking activities can indirectly affect your credit score, especially when switching accounts. One instance arises from repeated overdrafts or negative balances. If a bank account consistently falls into a negative balance and the debt is not repaid, the bank may eventually “charge off” the amount. This charged-off debt may be sold to a third-party collection agency. If the collection agency reports this debt to the major credit bureaus, it will appear on your credit report as a collection account, causing a significant drop (50 to 100 points or more) and remaining for up to seven years.

Another indirect connection occurs when applying for new credit products at your new financial institution. When you apply for a credit card, a personal loan, or a mortgage, the lender will typically perform a “hard inquiry” on your credit report. This hard inquiry, distinct from opening the bank account, can cause a small, temporary dip (a few points) and remains on your report for up to two years.

Updating automatic payments linked to your old bank account is essential. Failure to transfer recurring payments for credit obligations, such as loan installments or credit card bills, to your new account can lead to missed payments. A single payment reported 30 days or more past due can severely damage your credit score (50 to 100 points), and this negative mark can remain on your credit report for seven years. Proactively updating these payment details helps prevent unintentional delinquencies.

ChexSystems is a specialized consumer reporting agency used by banks to assess risk when opening new deposit accounts. Unlike the major credit bureaus, ChexSystems tracks banking history, including issues like unpaid overdrafts, bounced checks, or suspected fraud, rather than credit history. While a negative ChexSystems report does not directly affect your credit score, it can hinder your ability to open new bank accounts with other financial institutions. Information on ChexSystems remains for up to five years.

Key Components of a Credit Score

Understanding the factors that directly influence a credit score helps clarify why bank accounts generally do not play a role. Credit scores, such as FICO Scores, are calculated based on five primary categories, each weighted differently. The most impactful factor is payment history, accounting for approximately 35% of your score, which reflects whether you make loan and credit card payments on time. Consistent on-time payments are crucial for a strong credit profile.

The second most significant component is amounts owed, or credit utilization, which makes up about 30% of the score. This factor assesses how much credit you are currently using compared to your total available credit, with lower utilization ratios (typically below 30%) being more favorable.

Length of credit history contributes approximately 15% to your score. This considers the age of your oldest credit account and the average age of all your accounts, as a longer history of responsible credit management is generally viewed positively by lenders. New credit, representing about 10% of the score, pertains to recently opened credit accounts and inquiries for new credit. Opening multiple new credit accounts in a short period can indicate higher risk and may temporarily lower your score.

Credit mix accounts for the remaining 10% of your credit score. This factor considers the diversity of your credit accounts, such as a combination of revolving credit (like credit cards) and installment loans (like mortgages or auto loans). While having a varied credit portfolio can be beneficial, it is not necessary to open accounts solely to improve this factor, as its impact is smaller compared to payment history and amounts owed.