Does Having Too Many Bank Accounts Hurt Your Credit Score?
As the ups and downs of life send you on a financial roller coaster, you could find yourself with many bank accounts to your name. You may have been forced to relocate and open a local account for a job, you might be chasing high rates on savings accounts or opening accounts for cash bonuses. Before you know it, you're receiving statements for bank accounts that have become obsolete.
Due to increased awareness of financial literacy brought upon by the recession, bank customers have shown mounting concerns over their financial footprints. Credit has become a top priority in recent years. If you happen to have many bank accounts, you might worry if they will have any negative effect on your credit score.
How Credit Scores Work
Generally, your credit score is not directly tied to bank accounts. Regular bank activity will have little effect on your credit score because credit scores are based on data on your credit report. Your credit report does not record information regarding your banking activity in the same manner that it keeps information on your credit cards, student loans, mortgages, and other debt obligations.
Taking a look at the FICO score, the most commonly used credit scoring model, you'll see that banking activity is not relevant:
FICO Credit Score Factors and Their Percentages
|FICO credit score factors||Percentage weight on credit score:||What it means:|
|Payment history||35%||Your track record when it comes to making (at least) the minimum payment by the due date.|
|Amounts owed||30%||How much of your borrowing potential is actually being used. Determined by dividing total debt by total credit limits.|
|Length of credit history||15%||The average age of your active credit lines. Longer histories tend to show responsibility with credit.|
|Credit mix||10%||The different types of active credit lines that you handle (e.g., mortgage, credit cards, students loans, etc.)|
|New credit||10%||The new lines of credit that you've requested. New credit applications tend to hurt you score temporarily.|
However, be mindful that there is an odd chance that your bank accounts can affect your credit score.
Bank Accounts And Your Credit
There are two notable instances in which your bank accounts could hurt your credit score.
The first instance is when you open your bank account, which could result in a hard pull on your credit report if the bank requires it. This could give your credit score a small ding. If you open new bank accounts at multiple banks within a short period, you could do some substantial short-term damage to your credit score if more than one of these institutions pull your credit report.
The second instance could occur if you allow your account to reach a negative balance. This situation could occur when you overdraw your account or monthly account maintenance fees wipe out your account balance. If your bank accounts are left in negative territory for long period of time, the bank could send your account to a collections agency in an attempt to retrieve the amount owed. It would make a huge black mark on your credit report and your credit score.
Other than the two situations mentioned above, having an overabundance of bank accounts should have relatively little to no effect on your credit score if you keep the accounts in good standing.
A multitude of bank accounts doesn’t necessary bode well for your financial health. The wise move would be to officially close any bank accounts that you’ve abandoned because you’ll never know when you or the bank could trigger a transaction or fee. Most likely, you won’t be aware of it and be surprised to find that your credit score has taken a dive.
Consolidate your accounts by transferring any remaining balances from neglected bank accounts. Banks will not close an account until there is a zero balance so even a few cents in an account can prevent the account from closing. Some banks have begun closing accounts that are inactive for a certain period of time. In any case, request written confirmation that your account is closed.