Will switching banks hurt my credit score?

## Will Switching Banks Hurt Your Credit Score?

Switching banks can feel like a daunting task, especially if you’re worried about how it might affect your credit score. The good news is that switching banks, in itself, does not directly impact your credit score because bank accounts are not used in credit scoring. However, there are some indirect ways this transition could affect your financial health. In this article, we’ll explore how switching banks might indirectly impact your credit score and provide you with a structured approach to ensure a smooth transition.

## How Bank Account Changes Affect Your Credit

### Direct vs. Indirect Impact

When it comes to credit scores, only credit-related accounts like credit cards, loans, and mortgages are considered. Closing or opening a checking or savings account will not appear on your credit report and thus won’t directly impact your score (Experian, 2025; FICO, 2023). Think of it this way: your credit score is a measure of how well you manage debt, not how well you manage your cash flow.

However, there are indirect ways by which switching banks might affect your credit score:

- **Hard Credit Inquiries**: Some banks perform a hard credit inquiry when you open a new account, especially if you're applying for overdraft protection or a credit product. This can temporarily lower your score. According to FICO, a hard inquiry typically lowers your score by less than 5 points (FICO, 2023). However, the impact can be more significant if you have a thin credit file or multiple recent inquiries. Fortunately, many banks, especially in the UK, use soft credit checks for current accounts, which do not impact your score. A soft inquiry is like a background check that doesn't affect your credit score.

- **Missed Payments**: Failing to update automatic payments linked to your old bank account is a common pitfall. Even one missed payment can negatively affect your credit score. According to a study by the Consumer Financial Protection Bureau (CFPB), approximately 10% of consumers have experienced a late payment due to outdated payment information (CFPB, 2024).

- **Overdraft Fees and Unpaid Debts**: If you close your old account with an outstanding balance or unpaid overdraft fees, the bank may send the debt to a collection agency. Collection accounts are a major negative mark on your credit report and can significantly lower your credit score. A collection account can stay on your credit report for up to seven years.

## Steps to Minimize Risks When Switching Banks

To ensure a smooth transition and avoid any negative consequences, consider the following structured approach:

1. **Open the New Account First**: Before closing your old account, set up the new one. This ensures you have a working account to manage your finances during the transition. This also gives you time to familiarize yourself with the new bank's online platform and customer service.

   *Actionable Tip:* When opening the new account, ask the bank representative about any fees associated with the account, such as monthly maintenance fees or transaction fees.

2. **Update Direct Deposits and Automatic Payments**: Ensure all your income sources and automatic payments are directed to the new account. This includes your salary, utility bills, subscriptions, and any other recurring transactions.

   *Step-by-Step Guide:*
      *   **List all direct deposits:** Compile a list of all entities that deposit money into your old account, such as your employer, government agencies, or investment platforms.
      *   **List all automatic payments:** Identify all recurring payments linked to your old account, including utility bills, credit card payments, loan payments, subscriptions (e.g., Netflix, Spotify), and insurance premiums.
      *   **Update each payment method:** Contact each entity and provide your new bank account information. Many companies allow you to update your payment information online or through their mobile app.
      *   **Verify the updates:** After updating your payment information, monitor your new account to ensure that the deposits and payments are processed correctly.

3. **Allow for a Full Billing Cycle**: Give it at least one full billing cycle to ensure all pending transactions and payments have cleared. This reduces the chance of missed payments, which can severely damage your credit score.

   *Example:* If your rent is due on the 1st of each month, and you switch banks in the middle of the month, wait until the 1st of the following month to ensure the rent payment is successfully processed from your new account before closing the old one.

4. **Close the Old Account**: Only after confirming that all transactions have been processed and the account balance is zero should you close the old account. Ensure there are no outstanding fees or overdrafts.

   *Important Note:* Before closing the account, request a written confirmation from the bank that the account is closed and that there are no outstanding balances or fees. Keep this confirmation for your records.

### Real-World Scenarios

#### Scenario 1: Missed Payments

Imagine you switch banks but forget to update your rent autopay. If the payment bounces, it could result in a late payment being reported to credit bureaus, potentially lowering your score by 50–100 points. According to Experian, a single missed payment can lower a good credit score (700-749) by as much as 90-110 points (Experian, 2024). Such a mark can remain on your credit report for up to seven years (Fizz, 2024). This could also result in late fees from your landlord, adding to your financial burden.

#### Scenario 2: Hard Inquiry Impact

If you apply for a new credit card at your new bank during the switch, you might experience a small, temporary dip in your score due to the hard inquiry. However, this is generally not a long-term issue if no other credit applications are made soon after (Chase, 2025). For example, if your credit score is 720, a hard inquiry might lower it to 715. The impact will diminish over time, especially if you continue to manage your credit responsibly.

#### Scenario 3: Overdraft Fees Leading to Collections

You close your old bank account thinking it's at a zero balance. However, a small transaction you forgot about, like a $5 streaming service charge, posts after you close the account, resulting in an overdraft fee of $35. Because the account is closed, you don't receive any notification. The bank eventually sends the $40 debt to a collection agency. This collection account can significantly damage your credit score and remain on your credit report for seven years.

## Common Mistakes to Avoid

- **Not Updating Payments**: Failing to update your direct deposits and automatic payments can result in missed or late payments. This is the most common mistake people make when switching banks.

   *Actionable Tip:* Create a checklist of all your direct deposits and automatic payments and systematically update each one.

- **Applying for New Credit**: Applying for new credit products during the switch can lead to multiple hard inquiries, affecting your credit score.

   *Recommendation:* Avoid applying for new credit for at least three to six months before and after switching banks to minimize the impact of hard inquiries.

- **Closing Accounts Prematurely**: Ensure your old account is fully settled with no pending transactions before closing it.

   *Best Practice:* Wait at least 30 days after your last transaction to close your old account to ensure that all transactions have cleared.

- **Ignoring Overdrafts**: Any overdrafts or unpaid fees on a closed account can lead to collections, which will harm your credit score (Experian, 2025).

   *Pro Tip:* Before closing your old account, review your account statements for the past few months to identify any potential outstanding fees or transactions.

- **Forgetting About Linked Accounts:** Many people have lines of credit or other accounts linked to their checking accounts for overdraft protection. Make sure these are addressed before closing the old checking account.

## Key Takeaways

*   Switching banks itself doesn't directly hurt your credit score.
*   Indirect impacts like missed payments, hard inquiries, and unpaid fees can negatively affect your credit.
*   Open your new account before closing the old one.
*   Update all direct deposits and automatic payments promptly.
*   Allow for a full billing cycle before closing the old account.
*   Avoid applying for new credit during the switch.
*   Always ensure your old account has a zero balance and no outstanding fees before closing it.

## Bottom Line

Switching banks doesn’t have to harm your credit score if managed correctly. By carefully planning your transition and ensuring all financial obligations are met, you can enjoy the benefits of a new bank without any negative impact on your credit. Remember, the key is to update all automatic transactions and avoid unnecessary credit applications during the switch. With these steps, you can make the change with confidence and maintain your financial health.