Does bank switching affect your credit score? UK credit ratings explained

High street providers have been known to boast handsome bank switching offers in an effort to lure in new customers.

With different cash incentives launched throughout the year, you might be looking at changing your current account if you’ve been unhappy with your bank and an offer elsewhere catches your eye.

Switching is becoming more popular. According to the Current Account Switch Service (CASS), 2024 saw the second consecutive year of over a million switches – it facilitated 1,190,676 people in moving banks.

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Nationwide had the highest net switching gains, followed by Barclays, TSB and Lloyds.

Switching current account providers can bring several benefits. CASS reported that the availability of online or mobile banking, the interest on offer, the quality of the customer service, as well spending benefits like cashback were the top reasons why people preferred their new account.

While the benefits of switching are usually quite clear, can there be any pitfalls when it comes to your credit rating? MoneyWeek has looked into the details.

Does bank switching affect your credit score?

The main issue to be aware of if you’re considering a switch is any impact it could have on your credit score.

When it comes to applying for financial products and lending, there are two types of credit checks – soft and hard.

What is a soft credit check?

A soft credit check is a light touch preview by a lender of your credit worthiness without a full check, and as such doesn’t leave a trace behind that could impact your credit score.

They are often used by lenders or a comparison website to give you an idea if you’re eligible for some kind of borrowing – such as a loan or mobile contract – before you formally apply and to help you compare credit products available to you.

What is a hard credit check?

A hard credit check can only be completed with your permission when you make a formal application for credit. It involves a review of your credit report and may affect your credit score.

Experian head of consumer affairs, James Jones, says: “Applying for any type of credit, including current accounts, will usually result in a credit check that leaves a visible mark for other banks and lenders. These footprints are a factor for credit scores as they indicate your thirst for credit and a recent spate of applications can signal financial stress.

“This is why we strongly encourage people to space out credit applications and to first shop around using eligibility-checking services. These use only soft footprints – which are invisible to lenders – to help you decide where to apply. It’s also wise to avoid applying for any form of credit in the months running up to a mortgage application.”

Can you open a bank account with a soft credit check?

There are some banks that allow you to open a current account with only a soft credit check performed.

However, this is usually just for an account. If you want to gain access to any additional features, such as an overdraft, it’s likely you’ll need to do a hard credit check.

Jones adds that a single bank switch will only make a “small impression” on your rating, so it’s “unlikely to cause any inconvenience”.

Only those with a low credit score are likely to see an impact when changing providers.

An impression made on your credit report will then be seen for six months, after which it will be “disregarded”, Jones says. It will fully disappear after a year. But, according to CASS, if you take up multiple switching offers at the same time, it may take longer for your credit score to return to normal. So, it could make sense to space out your applications.

CASS also says a full switch may be better for your credit score than applying for an additional account to the one you already hold. It says this is because closing your original account can lead to a net positive contribution to your rating.

After a switch takes place, the organisation says your credit score will be protected by your bank or building society if any issues disrupt any standing orders or direct debits that are due to come out of your account.

CASS urges consumers to ensure the information they provide in their application to switch exactly matches the details held by their old provider.

Does loyalty pay?

There are many reasons why it can be convenient to remain loyal to your bank or building society.

For example, your current provider may have a conveniently located branch, their service could be exemplary, or you may simply trust them with your money.

In some cases, it can really pay to stay. For example, First Direct's 7% regular savings account is only available to existing current account customers.

Your original account may also come with benefits.

Nationwide customers also have an incentive to stick around – for its £100 annual member bonus. The Nationwide’s Fairer Share payment was made to eligible customers for two years in a row – though it’s not guaranteed, and there are eligibility rules so you might not qualify straightaway if you switch your current account.

Loyalty might help your credit score too. Experian told MoneyWeek that it attributes credit score points based on the average age of the accounts a person holds. So, mature accounts can have a positive impact on your report.

Is switching worth it?

Switching and staying can both impact your credit score in different ways.

While the free cash offered as a switching bonus is certainly attractive, it’s also worth weighing up whether your existing account really delivers for you when it comes to perks (e.g. cashback and exclusive accounts), interest rates and customer service. If another account scores well on all of these metrics and offers a switching bonus too, it’s definitely worth considering.

On top of the pros and cons of the account, you should also think about whether you will need your credit score to be at its best over the next 12 months. For example, if you have a mortgage application coming up, it may be a good idea to hold off until it’s done.