Opening a savings account doesn’t affect your credit score because you don’t borrow money and your savings account activity isn’t reported to an agency credit. Most financial institutions will perform a soft credit check when you open a savings account, but this is only to verify your identity. Not sure if opening a savings account is the right decision?
Talk to a Financial Advisor to analyze the details of your situation and find the right account for your financial goals.
Why You Should Care About Your Credit Score
When it comes to your financial life, your credit score is a big problem. It’s like a report card indicating whether or not you’re managing your credit responsibly. The three-digit number can impact your finances in different ways. With the right credit score, you will have access to better financing opportunities for major purchases. But a bad credit score can completely prevent you from getting loans for big-ticket items, like a residence or vehicle.
With that in mind, it’s perfectly natural to wonder whether or not opening a savings account affects your credit score. So, does the opening of a savings account affect your credit score?
Does opening a savings account affect your credit score?
Simply put, no, open a savings account does not affect your credit score because you are not borrowing money. Financial institutions generally do not run any type of credit report or report your history to a credit reporting agency. If a bank account does an indirect credit inquiry, it’s usually only to verify your identity and not to use the information to make a decision about opening an account.
If you are concerned about a potential damage to your credit score, contact the bank or credit union before opening your new savings account. A representative should be able to tell you all about the application process and what, if anything, you should be concerned about.
Credit checks for different types of savings accounts
Although banks do not check your credit when you open a savings account, they may check your deposit history depending on the type of savings account you open. For example, opening a savings account with built-in overdraft protection could increase the chances of a bail check. But generally, high-yield savings accounts or money market accounts without any overdraft protection are relatively safe from checks.
Whether you plan to open your new savings account at a bank or a credit union, the chances of a credit check are non-existent. The bank could execute what is called a ChexSystems report on your banking history. This is a consumer reporting agency that keeps track of banking history.
Firm credit check vs soft credit check: what’s the difference?
Not all credit checks are created equally. Depending on the situation, you might encounter a hard credit inquiry or an indirect credit inquiry when you borrow money. A soft credit check allows the financial institution to assess to some degree where your credit stands. But it won’t leave a mark on your credit report. As far as your credit report is concerned, an indirect credit inquiry has no impact. However, not all credit inquiries are minimally invasive. Instead, there are also difficult credit applications.
A firm credit request occurs when a lender or financial institution requests your complete credit report from a credit reporting agency. The information in your credit report affects your credit score, but some financial institutions like to take a closer look at the information on their own to assess things like your debt to income ratio.
Typically, your credit score will drop 2-10 points after a serious credit check. Although the information stays on your report for up to two years, the negative impacts usually stop after a few months. That’s why it’s important to understand when your credit is going to be withdrawn and what type of credit is done. Opening a savings account only has the potential to trigger an indirect credit inquiry and does not affect your credit score.
How to get the most out of a savings account
Without a hidden savings reserve somewhere, your financial situation can be unpredictable. A savings account often serves as the foundation for a solid financial foundation to help you cover urgent or unexpected expenses and protect your other finances. Here are some tips for setting up your savings account for the best overall financial picture:
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Put your savings on autopilot: If possible, set up an automatic recurring transfer to save a portion of each paycheck. By taking advantage of technology, you can steadily build your savings.
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Build an emergency fund: Not sure what to put in your savings account? This is usually a great place to store a emergency fund. Many experts recommend setting aside between 3 and 6 months of expenses for a rainy day. By separating these funds from your checking account, you’ll know a safety net is there when you need it.
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Pay attention to fees: Before signing up for a savings account, look for a no-fee option.
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Look for a high APY: In case you haven’t noticed, a lot savings accounts in traditional banks offer catastrophic APYs. Rates are so low you might wonder if funds are better off under your mattress. Fortunately, there is high yield savings accounts available. If possible, opt for a savings account with a stellar APY to make your funds work for you.
The essential
When you open a savings account, it will not affect your credit score because any financial institution that checks your credit for a savings account only performs an indirect credit inquiry to verify your identify. You are not borrowing money and in fact you are giving money to the bank to use in investments while you earn interest so your credit history is irrelevant.
Money saving tips
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Not sure how a savings account fits into your financial plans? A financial advisor can help you find the right savings account for your goals and make sure it’s part of your overall financial picture. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your advisors at no cost to decide which one is best for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
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When your savings account is open, make a plan to maximize your savings. One option is to set up a recurring transfer to grow your savings over time. take advantage of SmartAsset’s Free Savings Calculator to visualize how your savings could grow.
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