UK credit ratings: Does changing banks impact your credit score?

We weigh the benefits and drawbacks of bank switching bonuses, including whether they can impact your credit score

Historically, high street providers have used attractive bank switching offers to entice new clients.

With cash incentives available all year long, if you've been dissatisfied with your bank and an offer elsewhere appeals to you, you may want to consider switching your current account.

Switching is growing in popularity. For the second year in a row, more than a million switches were made in 2024, according to the Current Account Switch Service (CASS), which helped 1,190,676 people switch banks.

The top three banks with the largest net switching gains were Nationwide, Barclays, TSB, and Lloyds.

There are various advantages to changing current account providers. The top reasons why people chose their new account, according to CASS, were the availability of online or mobile banking, the interest rate offered, the caliber of customer service, and spending benefits like cashback.

However, BFIA has investigated whether there are any potential risks to your credit score, even though the advantages of switching are typically fairly obvious.

Does your credit score change when you switch banks?

Any potential effects on your credit score should be your primary concern if you're thinking about making a switch.

Credit checks come in two varieties when applying for loans and financial products: soft and hard.

A soft credit check: what is it?

This is a preliminary assessment of your credit worthiness by a lender without a complete check, so it doesn't leave any evidence that could affect your credit score.

They are frequently used by lenders or comparison websites to help you compare credit products that are available to you and to give you an idea of your eligibility for a loan or mobile contract before you formally apply.

What is a hard credit check?

You must give your consent before a hard credit check can be performed when you formally apply for credit. It may have an impact on your credit score and entails a review of your credit report.

"Any credit application, including current accounts, will typically result in a credit check that leaves a visible mark for other banks and lenders," says James Jones, head of consumer affairs at Experian. Your desire for credit is reflected in these footprints, and a recent wave of applications may indicate financial strain.

Because of this, we strongly advise people to spread out their credit applications and use eligibility-checking services to compare offers first. To assist you in choosing where to apply, these only use soft footprints, which are imperceptible to lenders. It's also a good idea to refrain from applying for credit of any kind in the months before submitting a mortgage application.

Can a soft credit check be used to open a bank account?

A soft credit check is all that is required to open a current account with certain banks.

But usually, this is only for an account. Most likely, a hard credit check will be required if you wish to access any other features, like an overdraft.

A single bank switch, according to Jones, is "unlikely to cause any inconvenience" because it will only have a "small impression" on your rating.

When switching providers, only people with low credit scores are likely to notice an effect.

A credit report impression will then be "disregarded" after six months, according to Jones. After a year, it will completely vanish. However, if you accept several switching offers at once, it might take longer for your credit score to stabilize, according to CASS. Therefore, it might be wise to space out your applications.

According to CASS, switching completely could improve your credit score more than opening a new account on top of the one you currently have. This is because deleting your initial account may result in a net improvement in your rating, it states.

The company claims that if there are any problems with standing orders or direct debits that are scheduled to leave your account after a switch, your bank or building society will safeguard your credit score.

The CASS advises customers to make sure the information they enter in their application to switch precisely corresponds to the information that their previous provider has on file.

Is loyalty rewarding?

It can be convenient to stick with your bank or building society for a variety of reasons.

For instance, your current provider might have a branch that is easily accessible, offer excellent customer service, and you might just trust them with your money.

It may be worthwhile to stay in some situations. For example, current current account holders are the only ones eligible for First Direct's 7% regular savings account. There might be advantages to your initial account as well.

Customers nationwide are also encouraged to remain loyal by the company's 100 annual member bonus. Due to eligibility requirements, switching current accounts may not immediately qualify you for the Nationwides Fairer Share payment, which was given to qualified customers for two consecutive years.

Loyalty may also improve your credit score. Experian informed BFIA that the average age of an individual's accounts is used to calculate credit score points. Mature accounts can therefore improve your report.

Is it worthwhile to change?

Your credit score may be impacted differently by switching and remaining.

Despite the allure of the free money provided as a switching bonus, it's important to consider whether the benefits of your current account actually meet your needs (e.g. 3. interest rates, cashback and special accounts), and customer support. It's definitely worth looking into if another account has a switching bonus in addition to high scores on all of these metrics.

Consider whether you will need your credit score to be at its peak during the next 12 months in addition to the account's benefits and drawbacks. For instance, it might be a good idea to wait until your mortgage application is finished.