How Switching Banks Can Affect Your Credit Score

While the simple act of moving your money from one bank to another won't touch your credit score, certain actions you take during the process absolutely can have an indirect effect.

1. Applying for New Credit: Opening an account at a new bank might involve applying for overdraft protection, which is often a line of credit. This action triggers a hard inquiry on your credit report, which can cause a small, temporary dip in your score.
2. Altering Credit Utilization: If you close a credit card or line of credit tied to your old bank, you reduce your total available credit. This can increase your credit utilization ratio, a key factor that can lower your score.
3. Disrupting Payment History: The transition period is ripe for errors. If you forget to move an automatic bill payment to your new account, a resulting late or missed payment can do significant damage to your credit history.
4. Reducing Credit Age: Closing a credit account you've had for many years shortens the average age of your credit history. Lenders prefer longer credit histories, so this can have a negative impact on your score.

How Much Will Switching Banks Affect Your Credit Score?

While switching your primary checking or savings account doesn't directly impact your credit score, certain related actions can. Here are a few things to keep in mind during the process.

• Hard Inquiries. Opening a new account may require a hard credit inquiry from the bank. This can cause a small, temporary dip in your credit score for a few months.
• Closing Old Accounts. Closing a long-held account can shorten your credit history length. A shorter history may negatively affect your score, as lenders prefer a long record of responsible borrowing.
• Linked Credit Products. Be mindful of credit cards or lines of credit linked to your old account. Closing these reduces your available credit, which can increase your credit utilization ratio and lower your score.

How You Can Avoid Switching Banks Affecting Your Credit Score

Keep Your Old Account Open

Closing your longest-held bank account can shorten your credit history, potentially lowering your score. If the account has no monthly fees, consider keeping it open with a small balance to preserve the length of your financial relationships and demonstrate stability to lenders.

Update Automatic Payments

Before closing your old account, meticulously transfer all automatic bill payments and direct deposits to your new one. A missed payment due to an oversight can result in late fees and a negative entry on your credit report, directly impacting your score.

Choose the Right Card to Switching Banks

Your credit score is not set in stone; it's a dynamic number that can always be improved with consistent, positive financial habits. There are several proven methods to boost your score, with most people seeing meaningful changes within just a few months.

• Monitor your credit reports. Regularly check your reports from all three major bureaus (Experian, TransUnion, and Equifax) to identify and dispute any inaccuracies that could be dragging down your score.
• Set up automatic payments. Since payment history is the single most important factor in your credit score, automating payments ensures you never miss a due date.
• Reduce your credit utilization. Aim to use less than 30% of your available credit, as high utilization can signal financial distress to lenders.
• Become an authorized user. Being added to the credit card of someone with a long history of on-time payments can help build your own credit profile.
• Diversify your credit mix. Lenders like to see that you can responsibly manage different types of credit, such as credit cards (revolving credit) and installment loans (auto or personal loans).
• Limit new credit applications. Applying for too many accounts in a short period results in multiple hard inquiries, which can temporarily lower your score.

The Bottom Line

The act of switching banks itself won't hurt your credit score. Any impact typically comes from closing old credit accounts or hard inquiries when applying for new credit products.

Frequently Asked Questions

Does closing a bank account affect my credit score?

No, closing a standard checking or savings account does not directly impact your credit score, as this activity is not reported to the major credit bureaus.

Will opening a new bank account hurt my credit?

Opening a new bank account typically only requires a soft credit inquiry, which does not affect your credit score. Hard inquiries are usually for lending products.

Should I close my old bank's credit card when I switch?

It's often wise to keep the credit card open. Closing it can increase your credit utilization ratio and shorten your credit history, potentially lowering your score.