Whether you’re putting money towards a deposit on a house or building a nest egg for retirement, savings accounts are great for organising the money you put aside. But do savings accounts affect your credit score? Loqbox explores how opening and closing savings accounts can affect credit scores, both directly and indirectly.
What is a credit score?
Before we explore the important question, “Does a savings account affect credit scores?”, let’s look at what credit scores actually are. They’re numerical values that let you know how creditworthy you appear to potential lenders. When you apply for credit, most companies do a credit search to decide whether to say yes, and what rate of interest to offer you.
Generally, the higher your credit score the more likely you are to be accepted and the better offers you’ll get. Saving on interest for big loans like mortgages can save you £1,000s in the long run, so keeping your credit score healthy is a fantastic way to boost your saving power and get the best financial products.
If you don’t know your credit scores you can check them for free, with each of the top three UK credit reference agencies (CRAs), using these free services:
ClearScore (uses Equifax data)*
Experian App (uses Experian data)
Intuit Credit Karma (uses TransUnion data)
*For transparency, we wanted to let you know that ClearScore pays us a small commission if you sign up using this link.
You can find out more about your credit scores and what affects them here.
What is a savings account?
A savings account is a place where you can securely store and deposit money and grow your pot by earning interest that is higher than standard bank accounts. Savings accounts offer different earning potential with more or less favourable interest rates. Often you get higher interest by locking your savings away for longer periods of time.
How are savings accounts approved?
Normally, when you apply for a savings account, the bank will do what is known as a “soft credit check”. There are two types of credit check, “hard” and “soft”. Soft credit checks allow banks — and lenders — to check that you are who you say you are. They’re one of the tools used to prevent identity fraud. Soft checks do appear on your credit report, but they’re only visible to you. If you already have an account with the bank, they may not need to do this check.
You can read more about the difference between hard vs soft credit checks here.
Does opening a savings account affect credit scores?
So, does opening a savings account affect credit scores in the UK? The short answer is no. Opening a savings account doesn’t generally involve applying for a line of credit. You’re not applying to borrow money, so your activity isn’t reported to the CRAs in a way that will be visible to potential lenders.
Because banks will only perform a soft credit check when you apply for a savings account, the check is only visible to you and it doesn’t have any effect on your credit score at all. Hard credit checks can impact your credit score, but that isn’t a part of your savings account opening process.
Does a savings account affect credit scores when you take money out?
Now you know that opening savings accounts doesn’t affect credit scores, but what about the way you use them? The balance in your savings account, and the way that you deposit and withdraw your money, isn’t reported or recorded on your credit report, so your activity doesn’t impact your credit score.
However, when you apply for lines of credit you may sometimes be asked to reveal how much money you have in your savings. Having a healthy balance in your savings can indirectly help you to get accepted for things like personal loans and mortgages, because it offers greater protection against your borrowing.
Does closing a savings account affect credit scores?
So long as you’re using a savings account — rather than a current account — to put your money aside, opening a savings account won’t affect your creditworthiness. But does closing a savings account affect your credit score? Again, the simple answer is no.
When you open a savings account, you won’t be offered an overdraft. That means that — in theory — it would be impossible to close your savings account while carrying a debt balance.
However, if you are using a current account as a savings account, it’s important to make sure that you don’t accidentally close your account while carrying a negative balance. Assuming that your account is in good standing — meaning you aren’t using an overdraft — then closing a bank account is unlikely to impact your credit score.
If you close your account when you still owe money to the account provider, this can be listed as a flag on your credit report and can potentially hurt your overall credit score. However, savings accounts usually don’t provide overdrafts or any other forms of lending so it is unlikely that closing a savings account will affect your credit score.
Does opening savings accounts affect credit scores indirectly?
Although there isn’t a direct impact on your credit score, do savings accounts help credit scores or hurt them indirectly? As mentioned above, keeping a healthy savings balance can help you to be accepted for lines of credit. So depositing into your savings is a great idea.
Also, with decent savings, you’re more likely to be able to handle situations that need money. An emergency fund, which is about 3 to 6 months of your income, can put you in a better place when life throws a curveball. Catching these hiccups can help to keep your credit score healthy as you won’t need to borrow to get out of trouble.
For a proven way to build your credit score, while also building a regular savings habit, join Loqbox and activate Loqbox Save. Tell us your savings target and we loan it to you and lock it away. Make your repayments and at the end of the year you’ll have a pot of savings set aside. We report your regular payments to the CRAs which helps to boost your credit score.
Improvements to your credit score are not guaranteed.
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