Your credit report provides a snapshot for prospective lenders, landlords, and employers of how you handle credit. For any mortgage, car loan, personal loan, or credit card you have had, your credit report lists such details as the creditor’s name, your payment history, account balance, and, in the case of credit cards and other revolving debt, what percentage of your available credit that you have used.
Credit reporting agencies, colloquially known as credit bureaus, also take this information and plug it into proprietary algorithms that assign you a numerical score, known as your credit score.
If you do not pay your creditors, pay them late, or have a tendency to max out your credit cards, that kind of negative information is visible on your credit report, which can lower your credit score and may prevent you from receiving additional credit, an apartment, or even a job.
- Does Opening a Check Account Affect Credit?
- Does having Multiple Checking Accounts hurt your Credit?
- Is Opening a Checking Account a Hard Inquiry?
- Does Opening TFSA Affect Credit Score?
- Is Having 3 Bank Accounts bad?
- What are the benefits of having multiple bank accounts?
- Does Anyone have a 900 Credit Score?
- How Do I Get the Highest Score?
- How can I Build my Credit Fast?
Does Opening a Check Account Affect Credit?
No. Your credit report only tracks your credit and debt situation. If you have a checking or savings account at a bank, credit union or brokerage firm, the following transactions will not appear on a credit report or credit score:
- Making a deposit or withdrawal
- Writing a check
- Closing an account
- Having multiple accounts
If you have a check overdraft, it still will not appear on your report unless you do not pay the fees and the bank turns the bill over to a collection agency.
Read Also: Will Refinancing Hurt my Credit?
There are a few instances where a checking account could affect your credit score. Some banks or credit unions may look at your credit report when you open a new account. Usually they do a “soft pull,” meaning they check your credit, but it does not affect your credit score.
Some banks may do a “hard pull” or “hard inquiry,” though usually those are only used by lenders when you are requested credit or a loan. If the bank does a hard pull, it will impact your credit score for up to 12 months, usually by dropping your score by five points or fewer.
The second way a checking account may affect your credit score is if you sign up for overdraft protection on the account. Doing so sets up a new line of credit, possibly triggering a credit report inquiry and a report from the bank to the three major credit reporting bureaus. But this is not always the case—not all overdraft accounts are reported. To find out if your account may be reported, ask your bank directly.
Even if a bank doesn’t report a new checking account to the credit bureaus, it may check with ChexSystems, a consumer reporting agency for financial institutions. Banks report mishandled checking and savings accounts to ChexSystems, which in turn shares that information with banks to help determine the risk of opening new accounts. Reports to ChexSystems stay on file for five years.
Does having Multiple Checking Accounts hurt your Credit?
While your checking account is an important part of your financial life, it has little effect on your credit score, and only in certain situations. Normal day-to-day use of your checking account, such as making deposits, writing checks, withdrawing funds, or transferring money to other accounts, does not appear on your credit report.
Your credit report only deals with money you owe or have owed. However, a few isolated circumstances exist where your checking account can affect your credit score.
Multiple bank accounts don’t necessarily hurt your credit score, but there are a few ways that they might.
Your credit report is a record of your financial activity. Although you might use your bank account on a daily basis, the information is not revealed in your credit report.
The number of accounts you have and the amount of money in those accounts does not affect your credit score. If you have more than one or two bank accounts, keep the accounts in good standing to avoid possible credit complications.
Reporting to Bureaus
Banks do not report any of your banking account information to the credit bureaus. A credit score is calculated based on a borrower’s revolving and installment accounts, such as credit cards and loans. When lenders pull your credit report, all they see is your payment history along with certain public records information, such as judgments, liens and bankruptcy.
Unpaid debt, including medical or utility bills, can also appear on a credit report. To achieve a high credit score, you must pay all your bills on time, keep a low balance-to-credit limit ratio and maintain a mixture of different types of credit.
How Bureaus Get Your Personal Information
Each credit bureau obtains information about you from different sources, therefore the information in one credit report may differ from the next. When you apply for a credit card, you are typically required to provide your address, employment information and annual income.
When the application is processed, the credit bureaus may update the personal information section of your credit report based on the information you provide. Because the employment portion of your report is not updated on a regular basis, it is often out of date. You can contact the credit bureau directly to update the information.
The Impact of Your Income
While the number of bank accounts you have open is not a factor in calculating your credit score, your income is often used to determine your creditworthiness. If you are applying for a home, auto or personal loan, lenders will assess your debt-to-income ratio.
The ratio is the percentage of your money applied to bills each month. The lower the number, the better. Lenders might hesitate to extend credit to someone who has already committed a large percentage of his income to other creditors.
When Bank Accounts Affect Credit
If you overdraw your account because of insufficient funds, banks require you to pay the amount you owe along plus fees. When you are unwilling to repay the amount owed, the bank may sell the debt to a collection agency. Even though banks do not report bad accounts to credit bureaus, most collection agencies report the delinquent accounts purchased.
In addition to the derogatory entry on your credit, the bank will likely report the account to the consumer-reporting agency known as Chex Systems. Banks rely on Chex Systems to find out whether an applicant owes another bank’s money.
Is Opening a Checking Account a Hard Inquiry?
There are two types of credit pulls or inquiries — hard and soft. A hard inquiry occurs when a potential lender wants to assess your creditworthiness. Examples of hard inquiries include credit card, auto loan, mortgage, and apartment-rental applications.
A hard credit inquiry may hurt your credit score, but only by a few points. This type of inquiry will likely stay on your credit report for up to two years and likely won’t affect your score for more than one.
To keep inquiries to a minimum, try batching your applications if you’re rate shopping. For instance, if you need a student loan and apply for multiple loans within a 45-day period, it will only count as one inquiry.
Batching works for nearly every type of credit application — except for credit cards — because multiple applications in such close proximity are determined to be for rate shopping purposes.
A soft inquiry occurs when your credit is not being assessed for creditworthiness by a lender. Examples of soft inquiries include checking your own credit score or inquiries made by businesses where you already have accounts. Soft pulls won’t affect your credit score.
Why did opening a bank account trigger a hard inquiry?
When you open a new bank account, most banks only will do a soft inquiry, but some will do a hard pull. According to U.S. News, you can expect a small drop in your credit score when you open a checking account with a traditional bank or credit union.
When you open a checking account, your new bank wants to know you are creditworthy. Why? Because those with low credit scores are more likely to overdraw their accounts and then abandon those accounts to avoid paying fees.
Your credit score also may have been pulled because you opted for overdraft protection. Overdraft protection generally establishes a new line of credit, which triggers a hard inquiry. Note: Signing up for overdraft protection isn’t always reported to the credit reporting bureaus, but it may be.
Does Opening TFSA Affect Credit Score?
Canadians are very accustomed to being taxed on everything. Once in a while though, the government will be nice and introduce a way to provide tax breaks. Essentially a Tax-Free Savings Account (TFSA) provides citizens with a maximum of $5000 of non-taxable cash to save and invest.
The great thing about it is that the interest, dividends, and capital gains that may be earned while your money is in this account, is not taxed as well. The money may be withdrawn at any point and the withdrawal isn’t taxed. Basically, it’s a great way to save and invest a relatively small amount of money and benefit from the dividends.
Tax-Free Cash
TFSAs are often described by comparisons to Registered Retirement Savings Plans (RRSP). Contributing to RRSPs will allow for income tax deductions while there are no tax deductions for TFSAs. Also, unlike RRSPs, when saving in a TFSA you are putting in income that has already been taxed.
With RRSPs, you are putting in money that hasn’t yet been taxed but will be when you make a withdrawal. With TFSAs you are always tax-free. Through the money you put in has already been taxed through your income taxes that is the extent of your tax worries. Withdrawal, earnings, and deposits are tax-free.
What it’s all about
TFSAs are not only simple savings accounts. If your goal with the TFSA is to save by investing you may do so. You can invest your tax-free dollars in mutual funds, GICs, stocks or bonds. The best thing about investing through the TFSA is that everything you put in, earn, and take out is tax-free, unlike other investments.
Limits
There is a strict contribution limit per year when it comes to TFSAs. Right now in 2012, it’s $5000, but keep in mind that that amount can change (if you’re reading this and it’s not 2012, please double check the current contribution limitations, we continue to use $5000 as an example) If there is less than a $5000 contribution in one year the remainder may be carried over to the next year.
This has very strict limitations, though. If you over contribute you will be fined. For example, if in January 2010 you put $5000 into your TFSA you have effectively reached your contribution limit until the following January (2011). If you decide to put in $5000 in January and take out all of it in September you cannot put in any more money until the following year.
You are not permitted to make further contributions in the same calendar year regardless of what you withdrew. However, in the following year, you are allowed to put in an equal amount to your withdrawal as well as your $5000. This rule has led to a lot of confusion.
A good thing about the TFSA is that you will always be allowed to put in $5000 a year. So say in January 2010 you put in $5000 and then don’t contribute any money until 2014. In 2014 you will be allowed to contribute as much as $5000 for every year you didn’t. So, in this case, you may put in $20,000.
All in all a TFSA is an extremely flexible way to invest and save money as long as you understand the rules. The money you put in and take out is not taxed, neither are your earnings and you can withdraw whenever the cash is needed.
Is Having 3 Bank Accounts bad?
You can have checking accounts at several banks at one time but there are pros and cons to this practice. Most people only have accounts at one bank because it simplifies the banking process. It is easier to have the majority of your accounts in one place so that your transfers and payments go through more quickly.
Banks count on customer loyalty, which is why they recruit so heavily on college campuses. They know that once you open your first bank account with them, you are much more likely to stay there, despite any fees that are charged. However, you should do a banking checkup once a year, to make sure your needs are still being met.
Reasons to Have Multiple Accounts
It is possible to have a checking account at more than one bank, and you may have specific reasons why you want to do this. For example, you may choose to keep your personal checking account open when you open a joint account with your spouse at a different bank.
You may have one checking account at a separate bank to pay your collection bills from so that they do not drain your checking account of more money than you authorized. You may have a different account for your small business or freelancing work that you do under your name. You may also have a savings account at an online-only bank to earn higher interest rates.
You might keep more than one bank to pay less for specific services, such as international wire transfer and exchange rate conversion price, which vary from bank to bank and depend on the country you have the most intimate relationship with. Each of these reasons is a legitimate reason to have multiple accounts.
Managing Multiple Accounts Carefully
It is important that you manage each your accounts carefully so you do not overdraw one account accidentally and run up overdraft charges. Keep your checkbooks in separate places, and choose different distinct checks for each account. If you are allowed to choose the style of your debit card, make sure that they are different so you do not grab the wrong one when you are making a payment.
You should balance your checkbook each month and keep a running total of your transactions so you do not overdraw. Checking your transaction online every few days will help you catch a mistake early so you can correct it before it becomes serious.
Choose Your Banks Carefully
When you choose a new bank, you may look for specific services they offer that your current bank does not. Some banks may offer a lower interest rate on car loans if you have a checking account with them and will set up an automatic payment for the loan. This is a good reason to open a new account.
Over time, you may find that you like the new bank better and want to transfer all of your accounts to the new bank, or want to build banking history and credit with both banks if you think you’ll need financing in the future. It is not difficult to close your old account if you decided to do that. Be sure that you transfer all of your payments and direct deposits to your new account before you close your old account.
Keep Business Accounts Separate
A separate bank account for a business is a good idea because it will help you keep your business finances separate from your personal finances. You may find a smaller local bank offers better services for your business. It is important to keep your business account very separate from your personal account, and you should write yourself a paycheck each month, instead of dipping into your business account to pick up small items you may need.
Take Advantage of Offers by Different Banks
It is more common to have online savings account at a bank that is separate from the bank you have your checking account with. Online banks often offer higher interest rates on savings accounts, and it can be worth the extra money you earn. Be sure that the online bank is insured by the FDIC and that it will guarantee the money you have in savings there.
Each bank has different policies surrounding their checking accounts, and you should understand each policy for the different accounts you have. This can help you save money in fees, as you maintain the minimum required balance, and avoid other monthly service fees the bank may charge. Even different accounts at the same bank may have different service fees and rules.
What are the benefits of having multiple bank accounts?
For every smart investor, there are two main factors to consider when keeping multiple bank accounts:
- To increase your wealth by letting your savings grow at a moderate interest rate.
- To have liquid cash available when you need it.
To achieve these goals, we advise attaching your checking account to your savings account for more effortless transfer between the two. You may also consider opening multiple accounts, separate from one another that help you achieve savings targets.
Here are some of the main benefits of operating multiple bank accounts.
1. Meet multiple saving goals
One of the main rationales for opening multiple savings accounts is to track the amount of money you can save for each individual savings goal. For instance, if you are looking to make the down payment for a new home, set money aside for next year’s vacation, and keep some funds aside for an emergency, then you can open three separate savings accounts and deposit money into each of them.
This will help you organize your goals and reach them more easily letting you know how close you are to achieving each individual goal.
2. Hold a savings reserve
If you want to keep some money locked down for an emergency, you can put it into a liquid savings deposit that offers a reasonable return without penalizing you for early withdrawal. If you do have an emergency, you can get the money out without paying extra costs.
You can invest the rest of your money into long and short term deposits for generating income.
3. Make use of FDIC coverage
The FDIC offers investment coverage for each individual, per depositing institution. The maximum coverage provided is $250,000.
This means that if you have $500,000 and you invest all the money into a single savings account, then your investment will be at risk. If the banking institute goes bankrupt, then you will only be able to get your investment back for $250,000.
On the other hand, if you divide the savings and invest $250,000 into two separate savings accounts, you will be able to get coverage for all your investments.
4. Get access to funds in case of failure
Even if you have less than $250,000, it is advised you invest your savings into different savings accounts. Suppose you have $100,000 and invest all of it into a single online investment bank. If that institute goes under for some reason, it would still take time for you to get access to funds through FDIC.
Dividing your investment into multiple savings accounts ensures that you will always have access to some funds to meet your needs.
5. Get different perks from different banks
Every bank comes up with varying offers, interest rates, and balance requirements. You may find it better to open savings accounts at two or three banks so that you get the benefit of their interest rates and transaction perks.
For example, one institute might offer a lower fee on international transfers while another may come with a debit card that guarantees 1% cash back at every retail purchase. If you have varying needs, you could get multiple accounts to get as many benefits as you can.
6. Test out various bank accounts
The proof of the pudding is in the eating. You can open multiple bank accounts if you are indecisive about which bank to go with for a long-term savings account. Sometimes, it is only possible to judge the service and benefits of an account after you have tried it out for yourself and assessed its usefulness for your needs.
After you have researched possible investment account options, you will generally narrow the field down to two or three accounts. If you are not sure which one to go for, why not open multiple accounts in all three?
There is nothing against opening multiple savings accounts as long as you can meet the bank’s or credit union’s requirements. Then, if you don’t like the services, you can shut down the other accounts and transfer funds to the bank you want.
Does Anyone have a 900 Credit Score?
A perfect credit score is the highest score you can achieve within a credit scoring system. Its numerical value can vary, depending on which credit scoring system is used, but it remains the holy grail for those seeking the best of the best scores.
Credit scores use statistical analysis of your credit history to forecast the likelihood you’ll fail to repay a loan. The higher your score, the lower your odds of failure. A perfect score indicates you are part of an elite group with the lowest possible odds of failing to pay your bills.
It tells lenders you are a highly desirable borrower and can give you access to loans with the lowest interest rates and fees as well as credit card issuers’ most enticing bonus and incentive offers.
The Perfect Credit Score May Vary
Ask most people what constitutes a perfect credit score, and you’ll likely hear 850. That’s correct with respect to the generic FICO® Score☉ used in most lending decisions, but it’s not always the right answer to the question.
The generic FICO® Score has a score range of 300 to 850, so a perfect score on that scale is, of course, 850. The same is true of the most recent scoring models from FICO competitor VantageScore®: Its VantageScore 3.0 and 4.0 models also use a 300 to 850 scale.
So while FICO and VantageScore use different mathematical formulas to measure your creditworthiness (and their scores are not generally interchangeable), 850 is a perfect score on both companies’ generic scores.
But many, many scoring models exist, with different score ranges and measures of perfection that differ with their numerical scales. For instance, the first two versions of the VantageScore model, VantageScore 1.0 and 2.0, use a scale of 501 to 990, so 990 is their perfect ideal.
FICO also offers specialized industry scores, the FICO Auto Score (fine-tuned to predict failure or success at repaying a car loan) and the FICO Bankcard Score (tailored to predict chances of failing to pay credit card bills). Each score is calculated differently, but both share a score range of 250 to 900, so perfection for each is a score of 900.
How Credit Scores Are Calculated
Generic credit scores, such as the VantageScore, the FICO® Score, and the FICO Auto and Bankcard scores derived from the generic FICO® Score, are based on credit history data compiled in your credit reports at the three national credit bureaus (Experian, Equifax, and TransUnion).
Credit score providers use sophisticated software called credit scoring models to analyze your credit report contents. Each model works differently, but all of them compare the credit decisions summarized in your credit report against behaviors that have been linked historically to the inability to pay loans.
Based on the appearance (or absence) of those credit scoring factors in your history, their frequency and how recently they occurred, the scoring model assigns you a three-digit score that summarizes your risk of failure to repay.
How Do I Get the Highest Score?
Put away your perfectionist ways when it comes to your credit score. While it is theoretically possible to achieve a perfect 850 score, statistically, it probably won’t happen. In fact, less than 1% of all consumers will ever see an 850 and if they do, they probably won’t see it for long, since FICO scores are constantly recalculated by the credit bureaus.
And it’s not like you can know with absolute certainty what is affecting your credit score. FICO says 35% of your score derives from your payment history and 30% from the amount you owe. Length of credit history counts for 15%, and mix of accounts and new credit inquiries are factored in at 10% each.
Of course, in actually calculating the score, each of these categories is broken down even further, and FICO doesn’t disclose how that works. The credit bureaus that create credit scores may also change how they make their calculations – sometimes for your benefit. For example, a change was made recently to reduce the weight of medical bills, tax liens, and civil judgments.
No need to obsess about hitting that 850 level. But if you want to try and reach it: Pay all your bills on time, eliminate nearly all of your debt (excluding a mortgage) and use, on average, no more than 7% of your available credit from all your accounts. And be careful with balance transfers, closing a credit card, or having too many of them.
Additionally, if you have some negative marks on your credit report that are holding you back from the 850 level, one of the best credit repair companies might be able to help, so long as you’re willing to pay a fee.
How can I Build my Credit Fast?
To improve your scores, start by checking your credit scores online. When you get your scores, you will also get information about which factors are affecting your scores the most. These risk factors will help you understand the changes you can make to start improving your scores. You will need to allow some time for any changes you make to be reported by your creditors and subsequently reflected in your credit scores.
Of course, certain credit score factors are typically more important than others. Payment history and credit utilization ratios are among the most important in many critical credit scoring models, and together they can represent up to 70% of a credit score, which means they’re hugely influential.
Focusing on the following actions will help your credit scores improve over time. A credit score reflects credit payment patterns over time, with more emphasis on recent information.
1. Pay Your Bills on Time
When lenders review your credit report and request a credit score for you, they’re very interested in how reliably you pay your bills. That’s because past payment performance is usually considered a good predictor of future performance.
You can positively influence this credit scoring factor by paying all your bills on time as agreed every month. Paying late or settling an account for less than what you originally agreed to pay can negatively affect credit scores.
You’ll want to pay all bills on time—not just credit card bills or any loans you may have, such as auto loans or student loans, but also your rent, utilities, phone bill and so on. It’s also a good idea to use resources and tools available to you, such as automatic payments or calendar reminders, to help ensure you pay on time every month.
If you’re behind on any payments, bring them current as soon as possible. Although late or missed payments appear as negative information on your credit report for seven years, their impact on your credit score declines over time: Older late payments have less effect than more recent ones.
2. Get Credit for Making Utility and Cell Phone Payments on Time
If you’ve been making utility and cell phone payments on time, there is a way for you to improve your credit score by factoring in those payments through a new, free product called Experian Boost.
Through this new opt-in product, consumers can allow Experian to connect to their bank accounts to identify utility and telecom payment history. After a consumer verifies the data and confirms they want it added to their Experian credit file, an updated FICO® Score will be delivered in real time.
Visit experian.com/boost now to register. By signing up for a free Experian membership, you will receive a free credit report and FICO® Score immediately.
3. Pay off Debt and Keep Balances Low on Credit Cards and Other Revolving Credit
The credit utilization ratio is another important number in credit score calculations. It is calculated by adding all your credit card balances at any given time and dividing that amount by your total credit limit. For example, if you typically charge about $2,000 each month and your total credit limit across all your cards is $10,000, your utilization ratio is 20%.
To figure out your average credit utilization ratio, look at all your credit card statements from the last 12 months. Add the statement balances for each month across all your cards and divide by 12. That’s how much credit you use on average each month.
Lenders typically like to see low ratios of 30% or less, and people with the best credit scores often have very low credit utilization ratios. A low credit utilization ratio tells lenders you haven’t maxed out your credit cards and likely know how to manage credit well. You can positively influence your credit utilization ratio by:
- Paying off debt and keeping credit card balances low.
- Becoming an authorized user on another person’s account (as long as they use credit responsibly).
4. Apply for and Open New Credit Accounts Only as Needed
Don’t open accounts just to have a better credit mix—it probably won’t improve your credit score.
Read Also: Cost to Refinance Home Loan
Unnecessary credit can harm your credit score in multiple ways, from creating too many hard inquiries on your credit report to tempting you to overspend and accumulate debt.
5. Don’t Close Unused Credit Cards
Keeping unused credit cards open—as long as they’re not costing you money in annual fees—is a smart strategy, because closing an account may increase your credit utilization ratio. Owing the same amount but having fewer open accounts may lower your credit scores.
6. Don’t Apply for Too Much New Credit, Resulting in Multiple Inquiries
Opening a new credit card can increase your overall credit limit, but the act of applying for credit creates a hard inquiry on your credit report. Too many hard inquiries can negatively impact your credit score, though this effect will fade over time. Hard inquiries remain on your credit report for two years.
7. Dispute Any Inaccuracies on Your Credit Reports
You should check your credit reports at all three credit reporting bureaus (TransUnion, Equifax, and Experian, the publisher of this piece) for any inaccuracies. Incorrect information on your credit reports could drag your scores down.
Verify that the accounts listed on your reports are correct. If you see errors, dispute the information and get it corrected right away. Monitoring your credit on a regular basis can help you spot inaccuracies before they can do damage.
Bottom Line
When it comes to applying for new credit, your credit history and credit score are definitely important but they make up just one factor of your application.
To show lenders that you have the ability to repay your debt, be prepared when you apply for a new loan or credit card. Have these financial resources ready to go and know your credit score going in. Doing so can open access to credit and put you on a path to a healthy financial future.
