Can switching bank accounts harm my credit score?

A good credit score is important if you want to access the cheapest deals. Can switching your bank account negatively impact your score? Let’s take a look.

A good credit score can help you access the cheapest deals.

So whether you’re looking for a credit card, a loan, or even a mortgage, it’s something worth paying attention to. But can switching bank accounts harm your credit score? Let’s take a look.

What is a credit score?

One of the biggest myths in the personal finance world is that each of us has a single magical credit score and that these scores can be compared side by side. It simply doesn’t work like that.

That’s because there are three main credit agencies in the UK, TransUnion, Equifax, and Experian, which may hold files on you. Each of the agencies scores your creditworthiness using a different scale. It’s possible to check your credit score for free with each of these agencies.

Why is a credit score important?

Lenders typically use one of the three agencies to help them make a decision on whether or not to offer you a product. For example, if you apply for a lengthy 0% purchase card, a lender may check your credit score to determine whether you can be trusted to repay the debt.

However, don’t assume that a stellar score means you’ll get accepted for everything. Lenders exist to make money. If you never go into debt, some lenders may decline your business. That’s because they may prefer someone who is more likely to make minimum repayments, so they can profit from the interest.

You can determine how likely you are to be accepted for a credit card without marking your credit file by using a credit card eligibility checker.

Can switching my bank account affect my credit score?

When you open a bank account, you’ll undergo a credit check, just as you would when applying for a credit card. However, there is one crucial difference.

When applying for a credit card, loan, mortgage or other traditional types of credit, you’ll undergo a ‘hard’ credit check. Hard checks appear on your credit file.

Many banks only conduct a ‘soft search’ when you attempt to open an account. These searches are recorded on your credit file, but only you can see them, not lenders.

Be aware, though, that some banks will conduct a ‘hard’ search once you choose to proceed with your application.

With this in mind, it’s much easier to get accepted for a bank account, rather than a credit card, as the checks are less stringent. You can even further boost your chances of acceptance for a bank account by rejecting any offer of a 0% overdraft (assuming you don’t have a need for it).

Is a ‘hard’ credit check something to worry about?

Undergoing a ‘hard’ credit check when opening a bank account is typically nothing to worry about.

Your file will simply note that you’ve made an application for credit, which will be wiped after a year. Problems may arise, however, if you have too many hard credit checks within a short space of time.

This is because it may give the impression that you’re desperate for credit. This can make it more difficult to access credit in the near future. As a rule, it’s worth holding off switching bank accounts if you plan to apply for a large amount of credit, such as a mortgage, within the following six months or so.

Can a rejection harm my credit score?

While being accepted for a bank account is easier than other types of credit, you can still be rejected. However, this isn’t a big deal. Your credit file will say that you’ve made an application, but won’t state you were rejected.

Why would I want to switch my bank account anyway?

Many people decide to switch accounts due to poor service from their existing bank. Others may move accounts due to a ‘switching incentive’ offered by the new bank.

If you are looking to switch a bank account, it’s worth knowing that the seven-day switching service ensures that when you switch accounts, everything – including direct debits and standing orders – will be automatically moved over for you.

How can I boost my credit score?

There are several ways you can boost your credit score, including:

  • Checking your credit files regularly for errors
  • Getting yourself on the electoral register so that your details can be verified by lenders
  • Moving homes less frequently.

If you have little or no credit history, it can often be a good idea to explore a credit card for bad credit, to help build up your credit. For more tips, see our article on how to boost your credit score.