Your bank account is like the beating heart of your finances. So whether you’re opening your first current account, or switching to a new one for rewards or better interest rates, you might be wondering: “Will opening a new bank account affect my credit score?” Loqbox is here to help you get the answers you need.  

First things first, it’s important to know that opening a bank account can hurt your credit score. But, if you arm yourself with a thorough understanding of the process, you might decide that the benefits of a new account outweigh the risks. We’re here to help you feel informed so you can avoid damaging your credit score. 

What is a current account?

A current account is a bank account designed for your day-to-day banking. These accounts are often free to open, but some do charge fees for additional features. Most of us choose to have our salaries paid into our current accounts, and use them for things like regular spending, and sometimes bills. 

‍When you get a new bank account, you’ll usually be offered a range of financial products. It’s fairly standard to receive a debit card, or other contactless payment methods via an app. Sometimes, you’ll be offered credit facilities like overdrafts, which give you a financial buffer, in case you need to make payments when you have no money.

Why might you open or switch bank accounts?

Most people will have at least one bank account to manage and organise their money. They’re  a fairly crucial part of your finances. You will often need one to get paid, and if you are hoping to improve your credit score, opening a bank account can help to show that you are responsible with money (if you use it properly). 

There may be times when you want to switch your current account from one financial institution to another. For example, you might hear about new offers and rewards provided by another bank, or they may have better interest rates or cash bonuses. Often, the bank that you are switching to will organise the changeover for you.

Does opening a new bank account affect your credit score?

So, can opening a bank account hurt your credit score? The short answer is yes, in some circumstances. But opening a basic current account is less likely to have an impact. Every time you open or switch your account, the new bank will look at your credit report to check that you actually are who you say you are. This is known as a soft credit check.

There are two types of credit check: hard and soft. A soft credit check is just used to match your identity to your application. This will show on your credit report, but it will only be visible to you and it won’t impact your credit score. However, if you apply for a credit facility like an overdraft, the bank may need to do a hard credit check on your report. 

A hard credit check is more involved and will leave a mark on your credit report that is visible to lenders. This can temporarily lower your credit score, but it will generally recover after a few months if you manage your finances responsibly.  Even so, it can be a good idea to check which type of credit check your new bank will perform when they open your account. 

You can find out more about the difference between hard and soft credit checks here.

While the hard credit check might dip your credit score, you may find that adding a line of credit like an overdraft actually benefits your credit score. The size of your overdraft will be added to your total available credit. Staying within 30% of your available credit can boost your credit score. So, having more available credit makes it easier to stay within that bracket. As long as you don’t use it, of course.

It’s worth noting that if you apply for multiple bank accounts with overdrafts at the same time, you could have a bigger impact on your credit score. This is because your activity can be viewed as irresponsible and perhaps even a little too desperate for credit. Because lenders are looking for assurances, this can be bad for your credit report.

Do bank accounts affect my credit score in any other way?

Other than what we’ve mentioned above, there are other ways that bank accounts can affect your credit score. The way that you use your overdraft can affect your credit score because potential lenders see it as a credit facility. If you are often deep into your overdraft it can raise your credit utilisation ratio which hurts your credit score.

It may also show lenders that you are over-reliant on credit which could impact your ability to get credit in the future. It can also hurt your credit if you close a bank account with any lines of credit attached to it that are still unpaid. Closing your account may also reduce your total available credit, which in turn may increase your credit utilisation ratio.

Joint accounts can affect your credit score if you are linked to somebody who has poor credit. Being attached to another person can mean that you get co-scored. This means that potential creditors will look at both your credit report, and the other person you are linked to. However, it is possible to remove financial connections.

What can I do if my credit score has been affected?

If you find that opening or switching your bank account has affected your credit score, don’t panic! Hopefully, any impact will be temporary, but if you have activity on your credit report that is more problematic, you might be looking for a fast and proven way to give your credit score a boost. Why not get started with Loqbox?

For £2.50 per week you can grow your credit score and improve your chances of being accepted for credit. We’ll report your responsible credit activity to the UK’s top Credit Reference Agencies (CRAs): Experian, Equifax and TransUnion. 

Improvements to your credit score are not guaranteed.