Does Bank Switching Affect Your Credit Score?

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Switching banks can lead to savings and improved money management, but what impact does it have on your credit report? Many readers have asked about the effects of switching banks or opening new accounts on their credit score.

New Bank Accounts and Credit Checks

When you open a new current account, your new bank will check your credit report. This can be done in two ways:

1. Soft Check: This verifies your identity and possibly assesses your chances of getting an overdraft. Soft checks don’t appear on your credit file and are similar to checks done by comparison sites or when you check your own file.

2. Hard Check: Most banks conduct a hard check, which records the result of your application on your report for a year. This is common with most bank account applications.

Some banks, however, do not perform hard checks for new current accounts, making them useful for switching without impacting your credit score.

When Opening a Bank Account Can Hurt Your Credit Score

Multiple Hard Checks on Your Report: Each hard check appears on your credit report. While one or two might not be problematic, multiple hard checks in a short period can signal to lenders that you’re desperate for credit, potentially harming your score.

Applying for an Overdraft: An overdraft is a pre-approved loan. Applying for one can negatively impact your credit score due to the hard check involved and the indication to future lenders that you have existing credit.

Opening a Joint Account: When you open an account with someone else, your credit files become linked. If the other person has a poor credit score, it can affect your rating as well.

When Switching a Bank Account Can Hurt Your Credit Score

Losing Longevity: Closing an older bank account can remove a long-standing relationship from your credit history, potentially lowering your score. Maintaining older accounts, or not closing them completely, can help mitigate this impact.

Does Your Credit Score Really Matter?

While credit scores give an idea of your credit health, banks and lenders look at your entire credit file. Each institution interprets the data differently, so a drop in your score after a bank switch isn’t always detrimental.

When to Avoid a Bank Switch

If you plan to apply for major credit, such as a mortgage, within the next six months to a year, it’s wise to avoid opening new accounts and switching banks. This helps maintain your credit score for important applications.

Bank Accounts That Won’t Hard Credit Check You

Starling Bank: Conducts a soft check to verify identity and assess overdraft offers without a full hard search unless requested.

Monzo Bank (£5 bonus) : Also performs only a soft check for new accounts.

Chase Bank: Allows switching without a hard check, though switching away means you can’t open another account with them in the future (instead you could consider opening subsequent current accounts within the Chase app and switching these - do not close the initial account!).

Switching banks can be beneficial and doesn’t have to harm your credit score if managed carefully. By understanding the process and monitoring your credit, you can enjoy the advantages of a new bank account without negative repercussions.