How Bank Accounts Impact Your Credit and How to Build Credit Effectively

Managing your finances is crucial, and bank accounts play a significant role in this. However, many people wonder if their banking activities can help build their credit. In this blog, we will explore the relationship between bank accounts and credit scores, and provide actionable tips on how to build credit effectively. If you have any mortgage service needs, feel free to call O1ne Mortgage at 213-732-3074. We are here to help you navigate your financial journey.

Do Bank Accounts Help You Build Credit?

Bank accounts, such as checking, savings, certificates of deposit, and money market accounts, are essential for managing your money and keeping it safe. However, these accounts are not typically reported to credit bureaus, which means they do not directly help you build credit. While some fintech companies have introduced checking accounts and debit cards with features that can help you get credit for your banking activity, these are exceptions rather than the norm.

That said, maintaining a healthy balance in your bank account can indirectly support your credit. For instance, having an emergency fund can help you avoid missed payments due to unexpected expenses. Additionally, savings can help you qualify for secured credit cards or loans, which can, in turn, help you build credit.

Bank Accounts Can Affect Getting New Credit

While conventional bank account activity does not impact your credit scores, it can affect your ability to get approved for new credit, such as a mortgage. Mortgage lenders often review bank statements to assess your financial stability. High assets and stable finances can indicate lower risk, making it easier to secure a loan.

For some consumers, linking their bank accounts to get credit for stability can produce an UltraFICO score. This score considers factors such as:

• How long accounts have been open
• Frequency and recency of transactions
• History of positive account balances
• Consistency of cash on hand

While the UltraFICO score is not yet widely available, it could offer more options and better terms for some borrowers in the future.

How to Build Credit

Even though bank accounts are not part of your credit history, there are several ways to build good credit. Whether you are starting from scratch or recovering from a setback, the following methods can help you establish a strong credit profile:

Secured or Unsecured Credit Cards

Credit cards, whether secured or unsecured, are generally reported to credit bureaus. Paying on time and keeping balances low can help you build credit. Late payments, especially those that are 30 days or more overdue, can significantly damage your credit score. Additionally, your credit utilization rate—the portion of your credit limit in use—affects your credit scores. Using a small portion of your limit and keeping balances low can be beneficial. Keeping credit card accounts open, unless you have a compelling reason to close them, can also help build credit.

It’s important to note that debit cards, although they may look like credit cards and can be used similarly, do not impact your credit score. Debit card activity is not reported to credit bureaus.

Authorized-User Status

Becoming an authorized user on someone else’s credit card allows you to make purchases without being responsible for paying the bill. This status can help you benefit from the primary user’s credit limit and payment record. However, its impact on your ability to qualify for credit in your own name may be limited.

Installment Loans

Installment loans, such as student loans, cellphone loans, credit-builder loans, car loans, and mortgages, are generally reported to credit bureaus. These loans have fixed payments over a set period. Paying on time can help you build credit, while late payments can hurt your credit score. Credit scores reward consumers who have both revolving credit (like credit cards) and installment credit, a factor known as “credit mix.”

The Bottom Line

In general, a bank account won’t help you build credit directly. However, managing your money effectively and sticking to a budget can be invaluable in managing credit responsibly. If you’re new to credit, money in your bank account might help you by serving as a security deposit for a secured credit card or loan. Using a credit card—secured or otherwise—and keeping balances low and paying on time can lead to a good credit score.

An installment loan can also help establish a positive payment history. You don’t need a credit card to build good credit, but using both credit cards and installment loans responsibly can be beneficial.

If you haven’t had credit before, you can still create a credit report with Experian Go™, which will help you determine your best strategy for starting to build credit.

For any mortgage service needs, don’t hesitate to call O1ne Mortgage at 213-732-3074. Our team is ready to assist you in achieving your financial goals.