Does Opening A Checking Account Affect Credit Score?

How Does Opening A Checking Account Affect Your Credit Score?

In the case of loans or credit cards, your credit score is among the most important factors that determine whether you will be accepted to borrow the funds or not. Of course, consumers are interested in knowing if some financial actions such as opening a new checking account will affect that crucial three-digit number.

To sum up, getting a new checking account does not influence the score, yet some subtleties might be helpful to know. This guide will help you understand some of the most important aspects related to getting a checking account and your credit score.

How Credit Scores Are Calculated?

Before diving into specifics on checking accounts, let's review the key components that influence your credit score.

• Credit record: Are you a constant and timely payer of minimum amounts on all your current credit accounts and loans? Late payments and delinquencies are going to harm your credit score.
• Credit utilization: This is a measure of how much of the credit limit one has used. Lenders suggest that one should use not more than 30% of their credit limit.
• Credit age: The credit age is another factor taken into consideration, and the longer you have been using credit, the better you are likely to fare.
• Credit card utilization: Even if you have many credit cards, it is preferred to have a good handle on all of them, as well as other lines of credit like car loans or mortgages, etc.

What is important to notice, there are no words like checking accounts or assets at all. Well, let's try to understand why that is the case.

Main Difference between Credit Scores and ChexSystems

Again, when you open an account with your bank or any credit union, your financial institution not only requests your credit reports and scores. Some will also check your checking account history through a consumer reporting agency known as ChexSystems.

Although both are utilized for assessing risk, ChexSystems is merely employed to check your past credit on checking and saving accounts. ChexSystems also details the number of late fees, overdrafts, and fraudulent activities related to your account. Many dings can lead to negative consequences such as account denials from banks to prevent further complications.

On the other hand, credit histories tell of how you have been using credit in the past regarding revolving credit and installment loans. One may directly affect the other in the long run, but they are separate parts of your credit picture.

Why Checking Accounts Have No Impact on Credit in the First Place

The main reason why opening a checking account has no impact on your credit score is because it is not reported on the credit bureaus. As stated above, the checking account management is only reported to ChexSystems and accounts are different than liability debts like credit cards, or loans.

Although you can open several new checking accounts within a few months or years, it will not appear or affect your credit rating with Experian, Equifax, and TransUnion. It does not affect your ability to get approved for other lines of credit and loans as long as the accounts are managed properly and no overdraft fees are incurred that would be reported to ChexSystems.

How Checking Accounts Can Affect Credit In A Roundabout Way

While merely opening new checking accounts doesn't make a direct hit or improvement to your credit reports, some indirect ways of getting a checking account can influence your overall financial health tied to your credit.

Improve Financial Habits Realizing that responsible spending and effective balance management begin anew when a new checking account is opened is a positive side to a new checking account. Successfully avoiding overspending the available balance and avoiding unnecessary charges can help consumers become more responsible in all aspects of their finances from credit cards to car purchases. Establishing good financial practices consequently leads to creditworthiness in the long run.

Support On-Time Payments Recurring overdrafts on your checking account are possible but if they are done repeatedly it will hurt your ChexSystems report. This would make it difficult to open another checking account with another institution if the established bank decides to freeze your account due to irresponsible conduct. Since most of the loan and credit payments are automatically withdrawn from the check accounts, the lack of the account can of course contribute to the higher miss payment rate. Overdrafts are to be avoided at all costs, which means that you need to have constant access to a checking account that allows you to settle all your credit bills on time.

Improve Your Debt-to-Income Ratio Lenders do not look at credit applications and check a checking account balance, but they do check your minimum monthly debt payments to take-home income or debt-to-income ratio. Thus, the less an applicant's current monthly obligations are compared to income, the more a candidate can handle and meet new credit obligations. Managing checking better and avoiding unnecessary fees can help pay off debts faster and therefore minimize the total amount owed.

Build Credit History However, one of the easiest ways that can be used to directly improve your credit reports is by opening new credit accounts that are well managed such as secured credit cards that are linked to checking deposits. Checking accounts with bank offers and ways to apply for a card to sign up as a new checking account is a good way to report the length of a positive credit history. If credit isn’t guaranteed immediately though, the checking relationship over time can help prove responsibility to the banks and be rewarded with joint cards accordingly in the future.

The Takeaway

Just opening new checking accounts on your own will not help change your credit score. Credit bureaus only follow your history of borrowing through credit cards, loans, mortgages, and every other line of revolving and installment credit granted. Checking accounts are assets that show how to responsibly deposit money and bill payments by check writing, using debit cards, and automatic debit. It is only indirect in the long run by directing the total financial behavior of the consumers every time new deposit accounts are opened. If done wisely and not falling into the traps such as overdraft which would pull your separate ChexSystems report, opening new checking accounts can help pay bills on time, and also help expand chances of opening other credit accounts offered by the same bank which in a way create a positive history on your credit score in the long run.

Ready to boost your credit score? Call +1 888-804-0104 now for the best credit repair services near you! Our expert team is here to help you achieve financial freedom and improve your credit. Don't wait—get started today!