When you open any new financial account, it’s always good to check what effect (if any) it will have on your credit.
When it comes to checking accounts, opening one won’t usually affect your credit score. However, that isn’t always true; sometimes opening a checking account can cause your score to drop slightly. This effect is both minor and temporary, and it isn’t something you generally need to worry about.
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Why doesn’t opening a checking account usually affect your credit score?
Briefly, opening a checking account won’t usually affect your score because it isn’t a type of credit account, and only credit accounts contribute to your credit score.
To explain that in more detail, you need to understand a bit about how opening a credit account normally affects your credit score.
Why opening a credit account lowers your credit score
Opening or even applying for a new credit account (such as a credit card or loan) will cause your credit score to drop slightly. That’s because when you apply, your potential creditor will check your credit history to make sure you’re a reliable borrower who generally pays their bills on time.
This credit check will leave a mark, called a hard inquiry, on your credit report. Hard inquiries lower your credit score by around 5 points for several months to 1 year.
Opening a checking account doesn’t usually cause a hard inquiry
Most of the time, when you apply for a checking account, the bank won’t perform a hard inquiry. That’s because hard inquiries are associated with applications for credit, and checking accounts aren’t credit accounts.
Credit always involves borrowing money, and when you withdraw from your checking account, you aren’t borrowing anything. You’re just spending money that you already have.
This means that when you open or use a checking account, you’re not asking your bank to take on any kind of risk. They don’t have to worry about whether you’ll pay them back, so they don’t need to check your creditworthiness by performing a hard inquiry into your credit history.
When will opening a checking account hurt your credit?
When you open a checking account, there is one thing you can do that might make your bank perform a hard inquiry: opting for overdraft coverage.
“Overdrafting” is when you try to withdraw or spend more money than you actually have in your checking account. Most of the time, when you do this, the transaction will either:
- Be declined: If you haven’t opted in to an overdraft protection program, the bank will simply decline the transaction if you try to spend money that’s not in your account.
- Use money from another account: If you’ve linked a savings account to your checking account (an option known as “overdraft protection”), the bank will automatically transfer the money to your checking account and complete the transaction.
However, if you have overdraft protection, there’s a third option: the bank will cover the transaction with their own money, essentially extending you a small loan. You’ll then have to pay this back (often plus an additional overdraft fee). 1
Because overdraft coverage functions a lot like a line of credit (it involves borrowing money), the bank may conduct a hard inquiry if you apply for it, the same way they would if you were applying for a real credit account.
How much will applying for overdraft coverage hurt your credit?
As mentioned, hard inquiries only lower your credit by around 5 points. Moreover, hard inquiries only stay on your credit report for 2 years, and have no effect at all after 1 year, so you’ll recover from the damage quickly.
Unless you’re planning on applying for a major line of credit (such as a mortgage) in the very near future and you need to make every point count, a minor drop in your score from a hard inquiry isn’t something that should deter you from opening a checking account.
How can you tell if your bank will conduct a hard inquiry when you open a checking account?
If you’re worried about damaging your credit, the simplest option is to just contact your bank and ask if they’ll conduct a hard inquiry when you apply for a checking account.
If they say they will, you don’t have to go through with the application. It should be relatively easy to find an account from another bank that doesn’t come with this minor downside.
Do you need a good credit score to open a checking account?
No, you generally don’t need a good credit score to open a checking account. If you have a bad score and a troubled credit history, it might be hard to get overdraft protection, but just opening an account will be fairly trivial.
Can you build credit by opening a checking account?
Unfortunately, there’s no way to build credit by opening or using a checking account. No matter how much money you keep in it or how responsibly you manage it, your bank will never report it to the credit bureaus, and it won’t be included in the information that shows up on your credit report.
However, there are a lot of other easy ways to build credit. For instance, you can:
- Get a credit-builder loan: This is a type of loan that’s designed to help people bolster their credit histories. Credit-builder loans are usually very easy to get and are especially effective if you’ve never taken out a loan before.
- Sign up for Experian Boost: Experian, one of the three main credit bureaus, offers a service that will let you build credit by paying your utilities (and your other regular bills). Signing up for this can boost your Experian credit score instantly.
- Open a credit card: The easiest way to build credit is to open a credit card and use it responsibly. If you’re worried your current credit score is too low to qualify for a credit card, look into getting a credit card for people with bad credit.
Again, as you set out on your credit-building journey, don’t worry too much about the effect your checking account will (or won’t) have on your credit score. It’s much better to focus on whether you’re following credit-building best practices in the other areas of your financial life.