Does Switching Banks Hurt Your Credit?

Often, switching banks won’t hurt your credit score, which is fantastic. If you want to pay fewer fees or better rates on savings, you may consider switching banks.

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Plus, opening a new bank account doesn't trigger a hard inquiry on your credit. In addition, savings and checking account information is never reported to the credit bureaus, so your credit will remain unaffected.

However, sometimes banking activity may indirectly affect your credit. Let’s dive into what happens when you switch bank accounts. Of course, experts on credit repair in Houston, Texas, such as those at The Phenix Group, can always help you navigate the process.

Will Switching Banks Appear on Your Credit File?

Does switching bank accounts influence credit score ratings? Perhaps not, because your savings and checking history won’t appear on your credit report. According to myFico, what is visible in your credit report includes:

  • Personal details, including your date of birth, name, and social security number

  • Credit accounts, including account numbers, creditor names, payment history and balances

  • Collection accounts and public records

  • Credit inquiries

Information about your credit inquiries, credit accounts, collections, or public records affects the FICO credit score calculations. A FICO score is a three-digit number that helps creditors gauge how likely you are to repay a loan. 

Does Switching Bank Accounts Influence a Credit Score?

Opening a new account rarely influences your credit ratings, as long as the account you’ve closed is in good standing. However, it could negatively affect your credit score if you're closing an account with a negative balance, you’re closing a credit card with your bank simultaneously, or there’s an unpaid loan, which is why it’s important to know whether or not credit card companies are willing to negotiate. Here’s the information shared with the major credit reporting agencies:

  • Negative balances can occur due to overdrafts. An overdraft occurs when your bank processes a transaction that exceeds your available balance. Additionally, the bank could charge you one or more overdraft fees to cover those transactions. If you switch bank accounts with overdrafts, your bank will transfer your account to a collection agency. The collection agency may report the delinquent debt to credit bureaus or sue you for the balance due. Collection accounts, delinquencies, and judgments could all appear on your credit file and hurt your credit score.

  • If you close your credit card while switching bank accounts, it can negatively affect your score, as it can affect your credit utilization ratio. This ratio determines how much credit you use at any given time. A lower credit utilization ratio is usually better for your credit score. Unfortunately, closing a bank account can lower your credit limit, increase your credit utilization ratio, and negatively affect your credit score.

Does Changing Banks Affect Your Odds of Securing a Loan?

Switching banks may influence your odds of securing a loan if your credit score drops when transferring your account. Again, this may happen if you’re closing a bank account with an existing overdraft, shutting down credit cards, or have a past due loan, so be sure to learn whether or not balance transfers are good for your credit.

Your chances of getting a loan might also be affected if your new bank conducts a thorough inquiry as a condition of opening a new bank account. Detailed inquiries are requests for your credit history, and won’t happen unless the bank has concerns about your application. Usually, when you open an account, banks perform soft inquiries that don’t affect your credit score.

If you’re looking to get a personal loan, debt consolidation loan, or any other type of loan, wait until you’re approved to switch banks, especially if you’re worried about credit score effects. This way, you won't risk having hard inquiries showing up on your credit and potentially lowering your score.

Final Thoughts

Opening a new bank account might be a brilliant move, especially if your current bank doesn’t meet your financial needs. However, before doing so, you must understand how this shift can affect your credit rating and score. Understanding this can help you maintain a good credit score even after switching banks–and credit experts at The Phenix Group, right here in Houston, can help.

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