The Link Between Credit Scores and Checking Accounts
Your credit score matters most when you’re applying for a mortgage, a car or personal loan, or a credit card. While your ability to pay bills on time is the main component of your credit score, your checking account can also play a role.
For financially savvy individuals, understanding the link between credit scores and checking accounts can inspire smarter financial decisions. In this guide, we’ll explore the relationship between credit scores and checking accounts, common pitfalls to avoid, and practical tips to improve your credit score.
What Is a Credit Score and How Does It Affect You?
A credit score is a number that lenders use to evaluate your creditworthiness. The scores range from 300 to 850, with higher numbers reflecting better credit. It impacts your ability to open credit cards, qualify for a mortgage, and secure car loans, and it can even influence job opportunities. Higher scores indicate lower risk to lenders, making it easier to get favorable terms on loans and credit lines.
The Role of Checking Accounts in Building or Maintaining a Good Credit Score
While normal checking account activity doesn’t affect your credit score, checking accounts play a role in your financial well-being. Financial institutions will not look at your credit score when you apply to open a checking account, but they may review your ChexSystems report. This report provides an overview of your banking history, including any overdrawn accounts or unpaid fees, which can influence your ability to open new accounts.
The Checking Account Mistake That Can Hurt Your Credit Score
Account overdrafts happen when you spend more than the balance of your checking account. This is the most common way your checking account can hurt your credit score. While infrequent overdrafts won’t immediately impact your credit score, it can become a problem if you allow overdraft fees to accumulate. If left unaddressed, financial institutions may send the debt to collections. Collection agencies report these actions to credit bureaus, which can harm your credit score.
Tips for Using Your Checking Account To Improve Your Credit Score
To leverage your checking account for credit improvement, consider using online and mobile banking to set up balance alerts. These alerts can help you stay on top of your expenses and prevent costly overdraft fees. You can also set up automatic payments or create reminders to remind you to pay your bills on time. This will safeguard your credit score from the negative impact of missed payments. Creating a budget that aligns with your income and regular expenses can also aid in maintaining a healthy checking account balance.
Another option is to consider signing up for an opt-in credit reporting service. These services share payment history information from your checking account with credit bureaus. By routinely paying bills like rent, utilities, and phone bills on time, you can positively impact your credit score.
If you've already expereinced some tough times that have affected you ability to gain acess to a checking account, GFA may be able to help. Our New Start Checking will help you to get back on the right path with your banking needs. You can regain access to checking account services at an organization that cares and wants to see you work your way up to a GFA account with special features and options.
Protecting Your Credit Score
While the link between credit scores and checking accounts isn’t a direct one, understanding the relationship can help you manage your finances. Monitor your checking account to prevent issues that may lead to negative reporting. By taking proactive steps and staying informed, you can maintain a healthy credit score. If you’re interested in learning more about how you can protect your financial future, reach out to GFA Credit Union to learn more about our rates and services.