Does opening a bank account affect your credit score?
Your credit score is one of the key tools lenders use to understand your financial behaviour, and it can affect everything from taking out a loan to setting up a phone contract. But many people still aren’t sure what causes it to fluctuate. For instance, does opening a bank account affect your credit score? The answer, unhelpfully, is: sometimes.
Below we take a look at when opening a bank account does and does not affect your credit score, whether closing an account has any impact on your rating, and the difference between a hard and soft credit check.
What is a credit score?
Your credit score is a 3-digit number used to indicate how risky it would be to lend you money. As a general rule, the higher your credit score, the easier you’ll find it to borrow money and secure better rates of interest. The lower your credit score, the harder it’ll be for you to borrow money. Your credit score is informed by things like whether you pay your bills on time, whether you're on the electoral roll, and how you've managed credit in the past.
There are 3 main credit reference agencies (CRAs) in the UK: Experian, Equifax and TransUnion. Your credit score can differ across these CRAs. This is because each agency has its own rating system and scoring criteria.
However, your credit score isn’t only checked when you try to take out a loan, such as a mortgage. Your credit score may also be checked when you take out a new broadband or mobile contract, or open a bank account.
Does opening a bank account hurt your credit score?
Whether or not your credit is affected when you open a bank account depends on what type of account it is and what kind of credit check is carried out.
Your credit score may take a dip if you open a current account, and the banking provider carries out a hard credit check. If they carry out a soft credit check, your score won’t be affected.
If you try to open multiple current accounts in a short space of time, and they all require hard credit checks, this could result in a lowering of your score.Savings account
Your credit score won’t normally be affected if you open a savings account, as most of the time providers run a soft credit check.
What's the difference between a soft and hard credit check?
A credit check is a way for a company to assess whether you’re a suitable fit for the product you’ve applied for. There are two types of credit check: a hard credit check, and a soft credit check.
Hard credit check: when a company carries out a hard credit check, it looks at your entire credit history. Importantly, a hard credit check leaves a mark on your credit history that is visible to other companies carrying out a check in the future. This can cause your credit score to temporarily fall. A company must request your permission before carrying out a hard credit check. Hard checks are more common if the current account you’re applying for comes with an arranged overdraft.
Soft credit check: a soft credit check is a less extensive check that doesn’t leave a mark on your file. This means that a soft credit check won’t affect your credit score. When you check your own credit score, it is done through a soft credit check.
Can you open a bank account with only a soft credit check?
It is possible to open a current account with a soft credit check, if that is all the bank requires. For example, Zopa only carries out a soft credit check when you apply for a free-to-open Biscuit current account.
Does switching current accounts affect your credit score?
As with opening an account, switching current accounts will only affect your credit score if the bank carries out a hard credit check when you apply.
Does closing a bank account affect your credit score?
Closing a bank account can affect your credit score, largely depending on the age of the account. If you close a current account you’ve had open for a long time, your credit history is ‘shortened’. This can lead to a short-term dip in your credit score.
Similarly, if your account had a well-managed overdraft or credit card attached to your account, and you close it down, this can temporarily affect your score, even if you no longer use the account. This is because you’ve ended a positive credit relationship.
When should you avoid opening a new bank account?
If you intend to apply for a loan or a mortgage, it might be a good idea to hold off opening a new current account relies on a hard search until after your application is settled. This is because you don’t want to unnecessarily lower your credit score, even in the short-term.
What to do if your credit score is affected
If your credit score is affected after opening a current account, don’t worry – it should be a temporary drop.
However, if your credit score suffers a long-term dip due to making multiple hard searches over a short period, you should make sure that:
You are registered to vote.
You are paying your bills on-time.
You aren’t using too much of your credit card or overdraft limit if you have one.
There aren’t any mistakes on your credit report, such as a mistyped address.
FAQs
Does having two current accounts affect your credit score?
Having 2 current accounts will only affect your credit score if each account requires a hard credit check to open.
Can I open a current account if I have bad credit?
You should be able to open a basic current account if you have bad credit. This won’t have an overdraft.
Does my credit score go down if I open a savings account?
Your credit score shouldn’t go down if you open a savings account, as most providers only carry out a soft credit check.
Does opening a joint bank account with someone affect your credit score?
Opening a joint bank account with someone may lower your credit score if the person you are opening an account with has a poor credit history.
