checking

Banking and your credit score

a pen and a check
Highlights
  • Most routine checking account activities don't affect credit scores.
  • Opening a new bank account can trigger a credit inquiry.
  • A bank line of credit can show up on a consumer's credit report.

Most banking activities aren't reported to credit bureaus, but a few can definitely knock some points off your credit score.

It's a common misconception that every piece of financial information is logged into a consumer's credit report. However, the truth is that deposit accounts at banks, credit unions and stock brokerages are largely excluded from credit reporting, credit reports and credit scores.

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"A credit report is used by lenders to assess risk, but that's specific to credit and debt," says Rod Griffin, director of public education at Experian, a credit bureau in Costa Mesa, Calif. "There's no clear relationship between how a person manages a checking account that would allow a lender to predict whether they'd manage a credit account well."

Banking activities that have no impact on a consumer's credit report or score include making a deposit or withdrawal, writing a check, closing an account or even having multiple bank accounts.

Even so, here are some instances when banking intersects with credit reporting:

Opening a new account. Some banks and credit unions look at a customer's credit report when he or she wants to open a new bank account. This look-see, if it happens, typically shows up as a "hard inquiry," according to Barry Paperno, consumer operations manager at MyFICO.com in San Rafael, Calif.

A "hard" inquiry refers to a consumer-initiated application for more credit. A hard inquiry may affect a consumer's credit score because it indicates the consumer intends to incur more debt and thus is more likely to default on some debt in the future.

For the FICO score, a hard inquiry can count for between zero to five points against the score. That's a small effect on most people's financial lives, but it could be material if someone opens many accounts in a short time frame and is very close to the line of qualifying (or not qualifying) for a home, auto or student loan.

Opting into overdraft protection. A new line of credit attached to a checking account for overdraft purposes also could trigger a credit report inquiry and result in credit reporting by some banks and credit unions.

"Some banks will open an overdraft account that on your credit report is reported as a line of credit and as a revolving account, which the FICO score looks at in a similar way to a credit card," Paperno says.

Not all overdraft accounts are reported to the credit bureaus, but those that are can affect the consumer's credit score, especially if the payments aren't made on time or the bank account is closed for cause.

"If the bank submits the overdraft amount to a collection agency, then you owe a debt to that bank and that could be reported as a collection account on your credit report," Griffin says.

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