When you decide to open a checking account with a bank, you may wonder if banks will run a credit check to determine your eligibility. It’s a valid question, as credit scores play a significant role in many financial decisions. Read on to the answer to this question and more. This article also explores alternatives to traditional checking accounts.
Introduction to Bank Accounts and Credit Scores
The Relationship between Banks and Credit Scores
The relationship between banks and credit scores can impact not just the banking services you receive but also your overall financial health. Generally speaking, banks don’t check your credit score when opening a checking account. However, they might still run a report from ChexSystems to verify your banking history. More on this shortly.
Why Your Credit Score Matters to Banks
Banks and lenders use credit scores to assess a person’s likelihood of repaying a loan, credit card balance, or other debts. They are numerical representations of your creditworthiness based on factors from your credit report.
A good credit score may qualify you for lower interest rates and better loan terms. But a lower score can make it difficult to secure credit, or if you’re approved, leave you with steep borrowing costs.
Understanding Credit Checks
Here’s what to know about credit checks and how they work.
What is a Credit Check?
A credit check is a process that involves a company, such as a bank or a lender, requesting your credit report from one of the three major credit bureaus – Experian, TransUnion or Equifax. This document contains detailed information about your credit history, including current and past credit accounts, payment history and any public records, including bankruptcies or liens.
Types of Credit Checks: Soft vs. Hard Inquiry
There are two main types of credit checks to be aware of.
Soft inquiries, also known as soft pulls, do not have an impact on your credit score and can happen without your consent. Examples of soft inquiries include:
- Promotional inquiries by credit card companies
- Checking your own credit report or score
- Employment background checks
On the other hand, hard inquiries are performed when you apply for a new line of credit, such as a mortgage, auto loan or credit card. They require your permission and may have a short-term, negative impact on your credit score.
Factors that may affect the impact of a hard inquiry on your score include the number of recent hard inquiries on your credit report, how long it’s been since your last inquiry and the type of credit you’re applying for.
Do Banks Run Your Credit to Open a Checking Account?
As previously mentioned, banks do not check your credit score when applying for a checking account. However, they may review your banking history and overall financial responsibility using a different screening tool called ChexSystems.
Circumstances Where Banks Might Run a Credit Check
In most cases, banks do not run a credit check when you want to open a simple checking account. However, there are specific circumstances where banks might choose to conduct a credit check. These instances include applications for high-value accounts, securing a loan or if you’re interested in premium banking services.
For example, if you are applying for a wealth management account or a premium banking package, the bank might run a credit check to evaluate your financial standing. This can help the financial institution determine your eligibility and gauge your investment capabilities.
Another situation where a bank may perform a credit check is when you apply for a loan, mortgage, or credit card. Financial institutions often review your credit history as a standard practice to evaluate your creditworthiness and, if approved, determine the terms and interest rates offered to you.
There are also instances where banks may use credit information to assess if you responsibly manage your finances. For example, if you have a history of unpaid fees or excessive overdrafts, the negative marks may impact your chances of opening a new checking account.
If a bank decides to run a credit check when you apply for a checking account, they will typically perform a soft inquiry. As aforementioned, it will not affect your credit rating.
The Impact of Bank Credit Checks on Your Credit Score
Are you wondering how your credit score will be impacted if the bank you choose decides to conduct a hard credit check when you apply for a checking account? Below is a closer look at what to expect in this situation.
How a Hard Inquiry Can Affect Your Credit Score
A hard inquiry can have a slight negative impact on your credit score as it accounts for 10 percent of your FICO score. That said, the impact should be minimal as long as you don’t have multiple hard inquiries in a short period.
It’s important to remember that maintaining good credit habits will play a more significant role in your overall credit health. Be sure to make timely debt payments each month and keep your credit utilization on revolving accounts low to give yourself the best chance at a healthy credit score.
Duration of Impact of a Bank’s Credit Check on Your Credit Score
A hard inquiry from a bank’s credit check will typically stay on your credit report for up to two years. The good news is that its impact on your credit score will dwindle over time.
But remember that banks rarely run a credit check for opening a checking account, and in most cases, your credit score is not impacted. Still, it’s important to monitor your credit reports and be aware of any hard inquiries that might occur.
Alternatives to Traditional Checking Accounts
If you’re concerned about a potential credit check when opening a checking account, don’t fret. There are alternatives to traditional checking accounts that could be a better fit for your needs.
Second Chance Checking Accounts
These accounts offer a fresh start for individuals who have experienced difficulties with past bank accounts or who have lower credit scores. These accounts typically have fewer features and higher fees than standard checking accounts, but they can help you rebuild a positive banking history. Over time, maintaining a good standing with this account can lead to upgrading to a traditional checking account.
Digital Checking Accounts
Another alternative is opening a digital checking account with an online bank or financial institution. Many digital banks offer straightforward eligibility requirements that may not involve credit checks, making qualifying for a new account easier.
Plus, digital checking accounts often come with competitive features, like no monthly maintenance fees, lower minimum deposit requirements and the convenience of managing your finances digitally. Some also feature generous ATM rebates for fees incurred for out-of-network withdrawals.
