Do Checking Accounts Affect Credit Score?

How Does Checking Account Impact Credit Scores?

A checking account is an account where you store money for paying daily and other necessary expenses or bills. You may access these funds through checks, debit cards, online payments, or cash. But could this basic account somehow also affect your credit?

Most people don’t check their account balances as frequently as they check their credit scores, and vice versa. As a rule, having a checking account does not affect your credit for the better or worsen it. Here is how it typically works.

It is important to note that checking accounts do not get reported to credit bureaus.

Credit scores are based on credit reports which are maintained by the three leading consumer credit bureaus, namely Experian, Equifax, and TransUnion. The reports indicate the kinds of loans and credit accounts that you have applied for and been issued over time. They also identify if you have made the payments as agreed and the proportion of credit you have utilized. Now, of all the financial records, checking and savings accounts do not appear on standard credit reports. This means that things like opening or closing a checking account do not have any impact on increasing or diminishing your credit.

Overdrafts Could Lead to Credit Reporting

Usually, credit reference companies will only compile data on credit cards, auto loans, mortgages, and student loans—a few forms of credit. If you overdraft your checking account, nevertheless, the checking account may be listed as a negative item to bureaus. This could damage your credit especially if the overdrawn sum is due for a protracted period. Not all banks, meanwhile, forward overdrafts to credit reporting companies. They have to tell you and get your permission before reporting overdrafts below $100 based on the 2018 banking rules set in motion. This lets you wipe the account before it starts to probe into your credit record.

Sometimes the applicant might not have any credit history at all and might not have their credit reviewed at all.

Some customers confuse themselves since they think that careful checking account management will help them prove their financial responsibility. Though the account itself is not shown on the credit report, they think it may help to establish credit histories. Not that is the case, but. Since they do not allow direct reporting, checking accounts does not let one build payment history—the main component of FICO and other comparable rating systems. A good track record means using credit products like credit cards or installment loans. Making regular payments for months and years on the same credit accounts greatly increases the ratings.

Credit Invisibility Still Persists

It is believed that 26 million people in the United States are ‘credit-invisible’; they possess no credit reports because they have not borrowed loans or credit cards that report to CRAs. These consumers are unable to provide this record which contains credit scores that lenders often refer to when approving credit and loans. Even the possession of a simple checking account also will not help make these “hidden” consumers come to the notice of prospective creditors. Applying for a secured credit card or a ‘credit builder’ installment loan can be beneficial to creating the first credit histories.

Pre-paid Debit Card Accounts also do not Help Credit Pre-paid debit cards are another kind of account that does not help in building credit.

Some consumers initially obtain pre-paid debit cards if they cannot obtain a checking account from a bank or credit union. The cards enable users to transfer deposited funds and spend the money to pay bills or shop online or physically like debit cards. However, having a pre-paid card also will not affect your credit score either negatively or positively. A pre-paid card is not an extension of credit from a lender – the single unifying factor of all credit products that do get taken to bureaus. As with checking accounts, the use of the cards does not create the payment history necessary to establish credit.

The Connection: Savings Accounts and Current Accounts promote credit control.

Although the checking accounts per se do not influence the credit situation, they can be useful when it comes to managing credit responsibly. This is an easily monitored account for receiving income, keeping money for paying the bills, and maintaining the budget which is appropriate for credit spending. Making at least the minimum payment for all your credit cards means that you don’t incur any interest charges: one of the strategies for building credit. Checking accounts provide an updated account of the cash flow that comes in and goes out every month to meet various credit-based expenses.

Is There More Checking Account Reporting In The Future?

Currently, the banks have the discretion as to whether or not to report overdrafts on checking accounts to the credit bureaus. However, certain pundits in the financial industry expect that there will be more checking account information going to credit reports in the years to come as consumers seek comprehensive information on how such people conduct their financial management responsibilities. Increased reporting of checking transaction details could help build credit files for anyone who proves to have stable checking account records or, on the other hand, harm those with chronic overdrafts. However, for now, credit bureaus depend mostly on credit accounts to source information on financial profiles. That means that proper utilization of credit is the best way to ensure sustainable construction and sustaining of good credit scores.

So to answer the question – no, checking accounts today, as a rule, do not have a direct impact on credit scores. If managed correctly they can only somewhat help in the credit-building process. However, some banks might report severe negative checking behaviors to bureaus that can hurt your credit score.

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