Does Opening a Checking Account Affect Credit Score?

Does opening a checking account affect your credit score directly?

When you open a new checking account, banks and credit unions don’t typically report to major credit bureaus. Additionally, your transactions and account balances are not used when calculating your credit score. Therefore, your checking account generally does not affect your credit score, and the same goes for your savings account, too.

Other types of accounts, such as home mortgages or car loans, do require hard credit checks so that a creditor can be sure that you will make payments. However, because you are not borrowing money with a checking account, no credit check is usually necessary.

A bank or credit union may perform a soft credit check to confirm your identity, but this does not impact your credit score, either. Just to be sure, ask your financial institution about its policy regarding credit checks.

How banks check your credit when opening a checking account

Banks may perform a soft credit check when you open a new checking account. This is to confirm your identity and also check for a history of fraud.

“When you open a checking account, the institution you choose to open the account with may perform a ‘soft pull’ on your credit report to verify your identity,” explained David Weisselberger, founder of Erase the Case, where he serves as an expungement attorney.

A soft check only shows your credit score; it takes a hard inquiry to reveal further details like your banking activity or account balance. A hard credit check, on the other hand, can stay on your credit report for up to two years, so it is critical to know if your new checking account will require one.

“Banks can also run a hard pull if the new account includes features like a linked credit card or if you are requesting higher overdraft limits,” explained Gates Little, president at The Southern Bank Company.

When comparing banks and credit unions, be sure to ask a representative whether a credit check is part of the account opening process so you know what to expect. You can also check the bank’s official disclosures for more details.

After you apply, you can check your credit score with one of the major credit bureaus — Equifax, Experian or TransUnion  — to ensure your credit score is unaffected.

ChexSystems vs. credit bureaus

ChexSystems is a specialty consumer reporting agency that operates in accordance with consumer protection laws under the Fair Credit Reporting Act (FCRA).

When you open a new checking account, most financial institutions request a report from ChexSystems detailing your banking activity. Unlike credit reporting agencies, ChexSystems does not share credit history or credit scores; instead, it focuses solely on your banking history.

“Unlike the three major credit reporting agencies, ChexSystems tracks ‘deposit account abuse’ history and specifically, involuntary account closures resulting from unpaid negative balances or suspected fraudulent activity,” said Weisselberger.

ChexSystems reports specifically show four types of negative banking activity:

• Bank-imposed account closures of checking and savings accounts
• Returned checks
• Repeated financial inquiries regarding your credit
• Check orders

It can also show other negative marks, such as unpaid fees and unresolved overdrafts. These events remain on your report for up to five years.

Based on this information, most banks and credit unions will determine whether to approve or deny your application.

“Although a negative mark on your ChexSystems file does not lower your FICO score, it effectively blacklists you from opening an account at approximately 80% of U.S. banks for a period of five years,” Weisselberger adds. “I see firsthand how financial reporting systems such as ChexSystems can quietly prevent a person from advancing their own progress well before they become aware of a problem.”

You are entitled to a free copy of your ChexSystems record each year. Be sure to review it carefully and report any errors immediately, as your new checking account may depend on it.

How second chance and secured checking accounts impact credit

There are also secured and second chance checking accounts that may be right for you. These accounts do typically require a credit check, but they do not base approval on credit alone. Second chance and secured checking accounts can be a temporary banking solution when you need to rebuild positive banking and credit history, and some of the top accounts come from today’s best banks and credit unions.

Second chance checking accounts are designed to accommodate those with bad credit or low income, as well as new customers who lack the banking history required for a traditional account. They provide an opportunity to establish or re-establish banking history, while still benefiting from basic banking services. Some financial institutions do not even run a ChexSystems report before approving an account.

You may also be able to qualify for a secured checking account. These accounts require an upfront deposit to open an account, such as $25 or $100. They may also require that you maintain a minimum account balance.

How overdrafting can affect your credit

Overdraft protection is a key feature many banks offer with their checking accounts, extending temporary credit if you make a purchase that exceeds your account balance.

Never close an overdrawn bank account without satisfying the balance first. In addition to future denials for new checking accounts, you could be reported to a debt collection agency. It will likely then report the debt to the credit reporting agencies, affecting your credit score.

“Once that collector reports the debt to one or more of the three major credit reporting agencies, the issue then becomes a credit reporting issue and could potentially cause substantial damage to your credit score,” warns Weisselberger.

Be sure to check the terms for your account so you understand what overdraft protection entails with your financial institution.

Avoid checking account mistakes that can hurt your credit

Once you have your checking account, there are some steps you can take going forward to help ensure it does not negatively impact your credit.

• Pay your bills. Make your payments on time and in full to avoid fees and penalties. A budgeting app like Rocket Money or Quicken can help you manage your money so you don’t fall behind.
• Add extra protection. If your bank or credit union offers overdraft protection, consider adding it to your account. Also, link your checking account to your savings account so you can cover any overdrafts from your checking.
• Space out your accounts. Do not open multiple accounts all at once, as your account could possibly be flagged for fraud.
• Resolve all balances. If you do decide to close one of your bank accounts, be sure to pay any remaining balances before closing the account so you do not risk that debt being reported to credit agencies and, in turn, have a lower credit score.
• Check your reports. You can obtain a free copy of your credit report and ChexSystems report once a year. Carefully review each report and take appropriate action if you find any errors.

What to do if you are denied a checking account

If you are denied a checking account by your bank or credit union, there are some steps you should take to improve your credit score and banking history so you can get the account you want in the future.

• Find out why: Your financial institution must provide you with the reason for your denial, per the Fair Credit Reporting Act. This is typically due to unresolved overdrafts and fees, but reasons can vary. You should also check your ChexSystems and credit reports to see what negative marks are included.
• Pay your debts: If you have any outstanding balances, contact your bank or credit union to pay any outstanding balances. ChexSystems will automatically be notified so your report can be updated.
• Correct errors: You should contact your bank to dispute any discrepancies on your report so they can be corrected. You can also contact ChexSystems for assistance.
• Open a second chance account: Consider opening a second chance checking account while you work on improving your credit. This will ensure you can still safely deposit your money and access features like a debit card until you can upgrade to a traditional account.