Does Your Bank Balance Affect Your Credit Score?

When it comes to building and maintaining good credit, most people know the main factors that make up their credit score – payment history credit utilization, credit history length, credit mix and new credit inquiries. But what about your bank balances? Do your checking and savings account balances play a role in determining your credit score?

The short answer is no, your bank account balances do not directly affect your credit score. However, your banking information can still influence your ability to get approved for new credit. Here’s an in-depth look at why bank balances aren’t factored into your score, how lenders may use your account data when reviewing your application, and tips for leveraging your accounts to improve your creditworthiness.

Why Bank Balances Aren’t Part of Your Credit Score

The three major consumer credit bureaus – Experian, TransUnion, and Equifax – compile information from your credit accounts to calculate your FICO and VantageScore credit scores. This includes:

• Payment history – Whether you pay your bills on time each month
• Credit utilization – The percentage of your total available credit you’re using
• Credit history length – How long you’ve had credit accounts open
• Credit mix – The variety of credit types in your profile (credit cards, loans, etc.)
• New credit inquiries – Applications for new credit accounts

Notice anything missing? Bank account balances and activity don’t appear on your credit reports. That means this information isn’t considered when calculating your scores.

The reason credit bureaus can’t see information about your bank account is that banks and credit unions don’t report it. It’s only about credit products like loans and credit cards that they talk about.

So while your checking or savings account balances have no direct bearing on your credit scores, your everyday banking activity can still make an indirect impact.

How Bank Accounts Can Influence Your Creditworthiness

When you apply for new credit like a mortgage, auto loan, or credit card, lenders look at more than just your credit score and reports. They also want to verify your income and overall financial health to determine if you can manage additional debt. This is where your bank account activity becomes relevant

Income Verification

Lenders need to confirm your income before approving you for credit. They may ask to see recent pay stubs, tax returns, or bank account statements showing regular direct deposits to validate your earnings.

Regular deposits of income can help show that you can pay back loans or credit cards in the future. It’s also helpful if you have more than one source of income, like a full-time job and a side business.

Assessing Cash Flow

Your expenses also matter when qualifying for credit. Lenders want to see that your income sufficiently covers existing obligations plus the new loan payment.

By examining your bank account transactions, they can tally your average monthly outlays for necessities like housing, transportation, and debts. This gives them an idea of how much wiggle room you have in your budget for additional credit.

Reviewing Savings and Assets

When you apply for a big loan like a mortgage, some lenders may also look at your savings account and investments. This happens less often, but it can happen. Having more assets can give you more financial freedom in case of emergencies that make it hard to pay your bills.

Additionally, substantial liquid savings could potentially be tapped as a source of extra funds if needed to pay off debts. However, this is not an ideal scenario.

Tips for Using Bank Accounts to Build Creditworthiness

Your banking information plays an indirect but important role in your creditworthiness. Here are some tips for leveraging your accounts to improve your chances of approval for new credit:

• Open a checking account if you don’t have one – This provides a paper trail of income deposits. Opt for direct deposit from your employer.

• Avoid overdrafts – While not reported to credit bureaus, frequent overdrafts can be a red flag for lenders.

• Keep positive balances – Having at least some savings shows financial stability.

• Limit balance fluctuations – Spiky account balances may signal poor money management. Try to maintain more consistent levels.

• Pay down your credit card balances. Having balances that are close to your credit limits can make it harder to get credit. Pay them down before applying for new credit.

• Build credit mix – Having both revolving (credit cards) and installment (loan) accounts can help demonstrate you can handle different types of debts.

• Only apply for credit you need – Numerous applications in a short timeframe can indicate risk and hurt your credit score. Only apply for accounts sparingly.

While bank accounts don’t directly impact your credit scores, lenders absolutely consider your banking information when evaluating applications. Managing your income, spending, and savings prudently can supplement an already solid credit profile and improve your chances of approval.

Frequently Asked Questions

How can I check my credit scores for free?

You can get free credit scores from credit bureaus Experian and TransUnion through their smartphone apps and websites. Many credit cards also offer free scores with your monthly statement. Checking your own credit has no effect on your scores.

Do assets like investment accounts impact your credit?

Assets not reported to credit bureaus like 401(k)s, stocks, and bonds don’t affect your scores. But for large loans, lenders may want to review your assets to evaluate your overall financial picture and ability to repay debts.

What if I don’t have much credit history yet?

If you’re just starting to build credit, secured credit cards require an upfront refundable deposit and can help establish positive payment history. Using a credit-builder loan to report on-time payments can also help boost thin credit files.

How long do closed bank accounts stay on your credit reports?

Bank accounts don’t get reported to credit bureaus. Only credit accounts like loans and credit cards you close appear on your reports, typically for 10 years after closing. This history remains factored into your credit scores.

Can my accounts be negatively impacted if my spouse has poor credit?

Your credit scores are calculated based on your individual credit history. However, joint accounts and accounts where you are an authorized user can be affected by activity from other users on that account.

The Bottom Line

While bank account balances aren’t a component of your credit scores, prudent account management does demonstrate financial responsibility. Maintaining steady income deposits, covering obligations, minimizing overdrafts, and conserving savings all support an applicant’s creditworthiness.

Approaching banking habits carefully when building or rebuilding credit can pay dividends in the form of improved loan and card approval odds. But the accounts themselves won’t move your scores up or down – only credit accounts reported to the bureaus can do that.

So don’t stress about an temporarily low checking account balance dragging down your credit. But do leverage healthy banking habits to put your best foot forward when seeking new credit.