Can opening a Checking Account affect my credit score?

See why you may experience a slight drop in credit score when opening up a checking account

Can opening a checking account affect credit score?

If you've opened a checking account, you may have noticed a slight drop in your credit score (usually no more than five points). This lowering is due to the bank checking your credit score upon reviewing your new account application.

First off, don't be alarmed - this type of lowering won't affect your credit much, and the penalty should be erased within two years. Also, the lowering is a one-time thing - all other acts of banking such as making deposits, and withdrawals will have no effect.

Why do banks need your credit score?

So why do banks even need to check your credit? Banks need to ensure that most of their patrons won't overdraft on their accounts. If banks allowed just anyone to open checking accounts, there is a higher chance of having a majority of them overdrafting at the same time. Such a situation can be very expensive for the bank, as the bank then has to find money to fill each overdraft account. Thus, when you apply for a new checking account, banks will perform a routine background credit check to ensure you're able to keep a positive balance.

Overdraft Protection Service

Banks will often advertise an overdraft protection service. Although this may sound like a great feature, it's actually considered a line of credit(an arrangement between a financial institution and a customer that establishes some agreement to allow a lender to lend money). Essentially, this is like a mini-loan, where a person is able to delay their payments. Such a setup is consdered a revolving account, and these types of accounts may lower your credit score upon opening.

Are banks legally allowed to do this?

Yes. Banks are allowed to pull your credit score under the Fair Credit Reporting Act , which states that banks are allowed to obtain consumer reports (aka credit reports) for permissible purposes.

Should I be worried?

If you're in the middle of applying for a mortgage or car loan, then you probably don't want to be opening up multiple bank accounts during this time. Other than that, since this barely affects your credit score, so there's really nothing to worry about.

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