Does Having a Checking Account Build Credit?

If you’re almost anyone who lives in the United States, you probably have a checking account and/or savings account. Also, you might be wondering whether having a checking account builds credit? We will answer this question in much detail below.

Does Having a Checking Account Build Credit?

No, having a checking account does not build credit. Checking and savings accounts do not build credit because the status of your accounts is not reported to the credit reporting bureaus. On the other hand, credit card accounts do affect your credit score because your account status is reported to the credit reporting bureaus.

That said, if you have a checking or savings account you should not abuse it because although checking accounts are not reported to the credit reporting bureaus and do not affect your credit, any derogatory information relating to your checking or savings account is reported to a system known as the ChexSystems.

One Situation Where a Checking Account Could Hurt Your Credit Score

Although your checking account has no effect on your credit, there is one situation where your checking account could hurt your credit.

If you have a checking account and your account becomes overdraw because of a purchase that you made, the negative balance on your account can be sold by your bank to a collection agency.

The collection agency will then attempt to collect the debt from you. In the process of collecting the debt, the collection agency may place a collection account on your credit report.

A single collection account can cause your credit score to drop by up to 100 points. The higher your credit score, the bigger the drop in your credit score when a collection account is added to your credit report.

For example, if your checking account only has $500 in it, and you purchase a laptop for $1200, your bank may authorize the transaction, leaving your checking account with a -$700 balance.

If you fail to pay the negative balance that’s on your account, your bank or credit union may sell the negative balance (debt) to a collection agency, and the collection agency will then ruin your credit.

So, if you have a checking account with a negative balance and you want to avoid causing significant damage to your credit, you should never leave your checking account or savings account with a negative balance.

Automatic Bill Payments

If you have automatic bill payments coming out of your checking account, you should always ensure that there are sufficient funds in your checking account to cover your bills. We say this because if there are insufficient funds in your checking account and bills are deducted, leaving a negative balance on your checking account, you could cause damage to your credit.

Although having a negative balance will not lower your credit score because your checking account is not reported to the credit reporting bureaus. However, if you leave the account with a negative balance for a long period of time, your account may be sold to a collection agency.

The collection agency will then attempt to collect the negative balance from you, and in the process of doing so, they may add a collection account to your credit reporting, causing significant damage to your credit score.

Opening a Checking Account

Although the status of your checking account is not reported to the credit reporting bureaus, some banks will check your credit before opening a checking account for you. Most banks check your credit by performing a soft pull, placing what is known as a soft inquiry on your credit report. However, other banks may perform a hard pull, which places a hard inquiry on your credit report.

A soft inquiry does not lower your credit score, however, a hard pull can lower your credit score by a few points, usually anywhere from 5 to 10 points.

Banks that do a hard pull are often those that provide overdraft protection, which is a line of credit that your checking account will draw from in the event that there are insufficient funds in your checking account to cover a transaction that you’ve made.

That said, you should not worry about a single hard inquiry because its impact on your credit score only lasts for 12 months, and the inquiry will only remain on your credit report for two years from the date that it was added to it.

Bottom Line

Although having a checking account does not build credit nor does it hurt it, if you have an overdrawn account, the overdraft or negative balance may damage your credit in the event that the negative balance is sold to a collection agency. So, now you know that merely having a checking account doesn’t build credit, and you should always ensure that there are sufficient funds in your account to prevent a negative balance from damaging your credit score.