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Does switching banks affect your credit score?

Switching banks has been made easier and more appealing than ever, but it usually involves a credit check with a small negative impact on your credit score.

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By

Chris Lilly

Edited by

Anne-Marie Emerson

Updated

Fact checked

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 enjoy an appealing reward. But most current accounts for adults involve a “hard” credit search.

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.

Certain no-frills current accounts may not involve a credit check as part of the pplication process. These will typically be accounts with no overdraft facility, and often have product names such as “Basic bank account”. The word “basic” isn’t a guarantee there will be no credit check involved, but it can be a good clue.

A “soft” credit check (which doesn’t impact your credit score) may also be used in the case of basic accounts with no overdraft. This is an aditional way for banks to simply check that you are who you say you are.

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

Will switching banks affect my chances of getting a loan?

A hard credit check will reduce your credit score very slightly, but this effect is usually short lived. Most of us have to take out a mortgage, credit card or loan from time to time, 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 may 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 on applying for a big 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 of time 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.


Using the 7-day switching service

It’s efficient to switch banks using the 7-day switching service. This cuts down hassle as your new bank organises everything.

It also reduces the chances of an error being made switching your direct debits and standing orders.

If you miss a direct debit payment as a result of a botched switch, this will harm your credit report.

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 which 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.

The bottom line

Switching bank accounts does 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 big 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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2 Responses

    Default Gravatar
    JoNovember 26, 2019

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

    Reply
      Avatarfinder Customer Care
      TomNovember 28, 2019Staff

      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

      Reply
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