November 14, 2024
Does opening a savings account affect your credit score?
Having a dedicated account for savings allows your money to grow and be easily accessible. Discover the importance of having a savings account and how it plays a crucial role in building a credit score
Opening up a savings account won’t directly affect the credit score you’ve built up, but there are some connections, that not many people know about.
Credit scores are a huge concern for a lot of people, but will a savings account impact all the work you’ve put into building it up?
Today, we’ll run you through savings accounts and what they can do to your credit score.
What is a savings account?
A dedicated savings account is a place to grow and build your money while earning interest, intended for long-term storage of funds.
Most offer different interest rates based on the amount you can deposit each month and how many transactions you’re allowed to take out over a set period. This means the bank will give you a percentage of the amount you save (usually after 12 months) helping you to grow your money more than you would without interest.
They’re considered pretty low risk, so is a reliable way to protect your funds up to a certain limit.
The limited withdrawal requirements encourage you to keep your money in there for longer, rather than using it to fund your day-to-day life.
Many people use them to achieve a certain goal (i.e. cars, homes, a holiday) or as an emergency fund for unexpected events (i.e. redundancy, a broken car part, care expenses).
The approval process for savings accounts
Choose an account type based on your financial goals and needs.
Apply (online or by visiting your branch)
Identity verification - you’re sometimes asked to provide a form of ID and proof of address.
Credit check - very rarely is a credit check conducted during a savings account application, but it will only be a soft check and is used to further confirm your identity.
Fund your account - most accounts ask for an initial deposit by bank transfer or cash deposit.
Account activation - your account is now activated and ready to start storing your cash.
The approval process is pretty quick, with most taking less than 24 hours. However, this depends on the bank you choose and how complex your case is.
How savings can impact your credit score
While there’s no direct link between credit scores and having a savings account, enjoying a healthy relationship with your finances reduces the need to seek credit - which will affect your score.
Similarly to Boshhh’s credit boosting SIM plans, savings accounts show you can manage your income responsibly without debt. While loans are useful, they can lead to hard credit checks and high credit utilisation, causing your score to take a knock. Having money in an emergency fund means you can pay for unexpected events, without having to take out a loan or pay by credit card.
However, if you do have a debt to repay, having a savings account reassures you that if for any reason you can’t make a repayment, you have money in a separate account that can be used to pay off any outstanding debt.
Be aware that some savings accounts have withdrawal limits so make sure to check this before taking out money to pay off a debt.
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