man holding phone looking at credit score

Will a checking account affect your credit score?

Opening a checking account is a big deal for a lot of people. Suddenly, you have a place to put your money besides your wallet, your piggy bank, or under your mattress. But what does a checking account mean for your credit? It may not be as important as you might think, but knowing what does and does not affect your credit score can be helpful as you start to build your credit history from scratch.

Does opening a checking account affect my credit score?

Even though opening a checking account is usually the first box you check when you first take steps into the financial world, the cold hard truth is that your credit score does not care. As far as your credit score is concerned, your deposits and withdrawals are your business.

There are a handful of exceptions, though. The lender you open your account with may perform a hard inquiry on your credit report. To be clear, this isn’t the norm Most financial institutions will only make a soft inquiry before opening a new checking account. Soft inquiries have no impact on your credit score, but a hard inquiry could drop your score a few points.

Lenders have also been known to make hard inquiries if you sign up for overdraft protection. On that same note, not signing up for overdraft protection and then overdrawing your checking account could impact your credit score. Should you fail to repay the amount in a timely fashion, the lender could turn the matter over to a collections agency. The same thing could happen if you close your account with a negative balance and don’t pay the lender back.

Long story short, your credit score is not as excited as you are about your new checking account, but it will be paying attention if you mismanage that account.

What affects my credit score?

What exactly is a credit score? And who exactly is keeping score? Two good questions that not everyone knows the answer to — even if they might pretend like they do. “Credit score” is such a common financial term today that many people never even question it, when actually understanding how it is calculated can help you boost your score.

Credit bureaus are the ones who calculate your credit score. Each of them has their own unique algorithm for calculating credit scores and they are all as tight-lipped as a magician’s assistant when it comes to revealing the specific math behind their algorithms. But what we do know is that five basic financial categories are the keys to determining your score:

  • Payment history.  Your payment history accounts for 35% of your credit score.
  • Credit utilization.  The amount of credit you have available to you and the percentage of that credit you are using regularly accounts for 30% of your score.
  • Length of credit history.  The age of your accounts is 15% of your credit score. The longer your credit history, the better your score, usually.
  • Types of credit. The different types of credit you utilize — credit cards, mortgages, auto loans, etc. — accounts for 10% of your score.
  • New credit.  The final 10% of your credit score is determined by how many new lines of credit you have applied for. Opening multiple new accounts in a short period of time can be seen as a sign of financial troubles to a lender.

What is a good credit score?

Your credit score is a number between 300 and 850. If your score is less than 600, you have what is considered a poor credit score. The sweet spot is between 661 and 780, which is where the good credit scores live. If you’re an overachiever, aim for 781 or higher. If ever you find yourself with a credit score higher than 781, you have done pretty well for yourself. You deserve a gold star, but you’ll have to settle for a great credit score instead.

If you are interested in opening a new checking account or have questions about your credit score, please get in touch with us. Math is our specialty!