Credit Score Basics > Does switching bank accounts affect your credit score?

Does switching bank accounts affect your credit score?

Switching bank accounts has many advantages, but it also has a downside: it might affect your credit score. A good credit score is crucial if you intend to borrow in the future—for example, if you want to get a credit card or a mortgage.

What is a current account?

A current account is a bank account meant for your day-to-day banking, and it allows you to do things like:

• deposit cash;
• withdraw cash;
• transfer money;
• attach a debit card to it;
• set up Direct Debits;
• and occasionally even get access to small amounts of credit through an overdraft.

How does switching bank accounts affect my credit score?

Any time you open a new bank account, your new bank will look at your credit report before they approve your application. This credit check is called a "hard check" and can affect your credit score.

The bank needs to do this for a few reasons:

• to verify your identity,
• and to see how risky it might be to lend money to you, especially if the current account you're applying for has an overdraft facility.

A hard check affects your credit score in multiple ways:

• it shows up on your report, and it is visible to other banks and lenders;
• once on your credit report, it stays there for up to two years;
• if you have too many hard checks in a short time, it can signal that you're struggling and trying to get more loans to cover your living costs.

On the other hand, a soft check is the kind you use when you check your credit score or go on a price comparison site. Even your existing bank might use soft checks—for example, when you apply to add an overdraft facility to an existing current account. A soft check does not show up on your credit report and does not impact your credit score.

There is a different way in which switching bank accounts can affect your credit score: getting a new overdraft facility.

An overdraft facility is essentially a line of credit. Getting a new one will affect your credit score in a couple of ways:

• it may improve your credit score if you use it regularly, for low amounts, and pay it back on time;
• but it can also damage your credit score if you exceed the limit or miss a repayment.

A new overdraft line even counts towards your debt-to-income ratio, which lenders calculate when deciding whether you can take on more debt or if you have more than you can handle already.

When should I avoid switching bank accounts?

Since switching bank accounts involves going through a hard credit check, you might want to avoid doing it when:

• If you're still deciding which bank account you want, instead of making multiple applications, use a price comparison site or eligibility checker. These won't hurt your credit score.
• You've had other loan applications already – Experian suggests limiting hard checks to 2 in any 6 months.
• You plan to take a loan (especially a mortgage) in the next 12 months.
• Or when you plan to switch from an individual to a joint bank account. This will create a "financial association" between you and your partner. If they have a poor credit score, it might also affect your loan applications.

Can I open a bank account with only a soft credit check?

Some UK banks only use a soft check when opening a new account. Most of these banks are the so-called "neobanks," which you can only access through a mobile app and which have no branches—like Starling Bank or Monzo.

You can even try signing up for a prepaid app like Revolut, Monese, or Wise. They aren't licensed as banks in the UK (so if they go bust, your money is gone), but they offer current accounts that do pretty much the same thing.

Whichever one you use, remember that if you also want to apply for a loan or overdraft within the app, you may still need to go through a hard credit check.

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