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If you’ve opened a new bank account recently, you may have noticed your credit score took a small hit. It’s not uncommon these days for your new bank to pull your credit score, even when there isn’t a credit card associated with the account. Here’s what it means to have your score pulled and what you should expect when you open a bank account.
Will getting your credit pulled always affect your credit score?
There are two types of credit pulls or inquiries — hard and soft. A hard inquiry occurs when a potential lender wants to assess your creditworthiness. Examples of hard inquiries include credit card, auto loan, mortgage and apartment-rental applications.
A hard credit inquiry may hurt your credit score, but only by a few points. This type of inquiry will likely stay on your credit report for up to two years and likely won’t affect your score for more than one.
To keep inquiries to a minimum, try batching your applications if you’re rate shopping. For instance, if you need a student loan and apply for multiple loans within a 45-day period, it will only count as one inquiry.
Batching works for nearly every type of credit application — except for credit cards — because multiple applications in such close proximity are determined to be for rate shopping purposes. For more information about rate shopping, check out this NerdWallet article.
A soft inquiry occurs when your credit is not being assessed for creditworthiness by a lender. Examples of soft inquiries include checking your own credit score or inquiries made by businesses where you already have accounts. Soft pulls won’t affect your credit score.
For more information about the difference between hard and soft inquiries, check out this article.
Why did opening a bank account trigger a hard inquiry?
When you open a new bank account, most banks only will do a soft inquiry, but some will do a hard pull. According to U.S. News, you can expect a small drop in your credit score when you open a checking account with a traditional bank or credit union.
When you open a checking account, your new bank wants to know you are creditworthy. Why? Because those with low credit scores are more likely to overdraw their accounts and then abandon those accounts to avoid paying fees.
Your credit score also may have been pulled because you opted for overdraft protection. Overdraft protection generally establishes a new line of credit, which triggers a hard inquiry. Note: Signing up for overdraft protection isn’t always reported to the credit reporting bureaus, but it may be.
If your credit score isn’t pulled, will banks know if you’ve mishandled bank accounts?
Even if your bank information isn’t reported to the three credit reporting bureaus and potential new banks don’t pull your credit score, banks use a consumer-reporting agency, ChexSystems, to communicate information.
ChexSystems is made up of financial institutions that contribute consumer bank information on closed checking and savings accounts. The information is used to show whether or not banking customers will be likely to overdraft and close their accounts.
ChexSystems is a legitimate agency, governed by the Fair Credit Reporting Act, but it is not considered a credit reporting bureau. All information reported to ChexSystems will stay on your file for five years, unless it’s incorrectly reported and disputed.
If you open a new account and a credit pull is initiated, don’t be alarmed. While a hard inquiry can affect your credit score, you likely won’t lose more than a few points, which are easily recoverable. This inquiry will stop affecting your credit score after one year, but remember, it won’t drop off your credit reports for two years.