Does switching banks affect your credit score?

Switching bank accounts is easy, but it usually involves a credit check with a small negative impact on your credit score.

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By

Chris Lilly

&

Rachel Wait

Edited by

Emily Herring

Updated

With lucrative switching offers frequently being offered by competing banks, switching your current account can be a smart way to pocket some free cash or benefit from other juicy perks. However, when switching current accounts, a “hard” credit search might be carried out – which can impact your credit score.

Will switching banks be visible on my credit file?

The fact you switched banks won’t appear on your credit file, but the credit check the bank made at the time will be visible, typically for 12–24 months.

Banks usually carry out credit checks to verify you are who you say you are, but they can also be done to check your likelihood of being accepted for an overdraft.

Certain no-frills current accounts might not involve a credit check as part of the application process, as they typically don’t have an overdraft facility. These accounts are known as “basic bank accounts”. The word “basic” isn’t a guarantee there won’t be a credit check involved, but it can be a good clue.

Some banks might also only carry out a “soft” credit check, which can be used to verify your identity but won’t impact your credit score. Again, this is more likely to be the case if you’re applying for an account without an overdraft.

But in most cases, banks will carry out a “hard” credit check, which will leave a mark on your credit report and can cause your credit score to dip temporarily. This won’t usually be a problem unless you’re applying for more than one current account over a fairly short time.

It’s a great idea (and usually free) to get to know your own credit score and report, so you can see how you look to prospective lenders.

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Will switching banks affect my chances of getting a loan?

A hard credit check reduces your credit score very slightly, but this effect is usually short-lived. Most of us will need to take out a mortgage, credit card or loan at some point, so credit checks are standard in almost all credit files.

Certainly, being credit-checked for a new bank account won’t be as harmful as missing a payment to a company you owe money to.

If you apply for an overdraft with your new bank account, this might impact your ability to get a loan, as lenders will consider the amount of credit you already have access to. The more credit you can already access, the tougher it will be to get more.

Some banks will offer you the opportunity to apply for their credit card at the same time as switching banks. This may involve a second credit check, as well as giving you greater access to credit. Both of these factors will affect your chances of getting a loan.

If you’re planning to apply for a large loan in the near future, it’s a good idea not to switch banks until after this loan has been approved.

Multiple credit checks in a short period is considered a red flag by many lenders, so switching many times could be more likely to impact your chances of being approved for future loans.

How does opening a joint bank account affect my credit score?

If you decide to open a bank account with someone else, this creates a financial association, and your credit files will be linked. If your partner has a poor credit score, your own credit score could be dragged down, making it harder for you to get credit again in the future.

Using the 7-day switching service

Using the 7-day switching service is the most efficient way to switch your bank account. Your new bank organises everything, making the process easy, reliable and hassle-free, and the switch should be completed within 7 working days.

It also guarantees that all payments from your old bank account, including direct debits and standing orders, will automatically be redirected to your new bank account, reducing the chances of an error being made. This is important, as missed payments can harm your credit score.

Nearly 50 banks and building societies are part of the 7-day switching service.

Do

  • Search for the best deal before switching banks
  • Switch using the 7-day switching service

Don’t

  • Apply for an overdraft or credit card if you don’t need it
  • Switch banks too regularly
  • Switch banks if you’re about to apply for a large loan

Example: Robert’s loan application and his credit score

In the middle of saving for a mortgage deposit, Robert discovered a bank account that paid a better interest rate on in-credit balances.

He was aware that switching banks would affect his credit score slightly, but as he didn’t plan to apply for at least a year, he decided the extra interest was worth switching for.

The added interest helped him save for a mortgage deposit quicker, and his mortgage application was still approved due to all the other actions he was taking to improve his credit score.

* This is a fictional, but realistic, example.

Bottom line

Switching bank accounts will usually affect your credit score, but the impact is typically so minimal that you should only worry about it if you’re about to apply for a mortgage or a loan. You can find the best switching deals in our guide.

Frequently asked questions

How different factors can affect your credit score

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To make sure you get accurate and helpful information, this guide has been edited by Emily Herring as part of our fact-checking process.
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Chris Lilly is Head of publishing at finder.com. He's a specialist in personal finance, from day-to-day banking to investing to borrowing, and is passionate about helping UK consumers make informed decisions about their money. In his spare time Chris likes forcing his kids to exercise more. See full bio

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Chris has written 602 Finder guides across topics including:
  • Loans & credit cards
  • Building credit
  • Financial health
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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio

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2 Responses

    Default Gravatar
    JoNovember 26, 2019

    Can I switch banks if I have a loan still to pay?

      AvatarFinder
      TomNovember 28, 2019Finder

      Hi Jo,

      Thanks for your question.

      You’ll generally be able to switch your current account to another bank even if you’re still repaying a loan with your original bank. If your existing bank’s loans are only available to existing customers, however, then it may not allow you to keep the loan open when you switch. If in doubt, drop your existing bank a line to confirm.

      Under the Current Account Switch Service guarantee (CASS) your new bank will switch your direct debits across to your new account, so that if your loan is repaid by direct debits from your current account, these will continue as normal when you switch.

      If you simply want to open a new current or savings account with a different bank, you should be free to do so without it affecting your existing loan.

      If you want to move the loan from one bank to another because it’s offering a better rate, this is also possible. Basically you apply for a loan with the new bank that covers the amount you still need to repay on your original loan and then use the new funds to pay off the original loan. You will then continue to make repayments on the new loan instead.

      Please be aware that you may be charged a fee for paying off your original loan early, or you may pay up to two months’ interest on your outstanding balance beyond the date on which you request to close the loan. If the new loan has a higher rate or a longer loan term you may also end up paying more interest overall.

      I hope this answers your question, but feel free to get in touch if you need any more information.

      Regards,

      Tom

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