Do Checking Accounts Affect Your Credit Score?

5 min read
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Executive Summary

Checking accounts are not part of your credit history and will not impact your credit score. According to the credit reporting bureau, Experian, your credit report will only include information about your debts. Thus, information about your income or your assets such as checking account balances, savings account balances, certificates of deposit, stocks, bonds, or any other investments are not included in the report and will not impact your credit score. However, there is an important caveat you need to take note: While information about your income or you and your business’ assets is not included in the credit report, it is still financial information that is considered in lending decisions. This helps them determine your creditworthiness and will influence their decision to grant you credit or not.

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Does bank account information show up on a credit report?

Most of the Western adult population has some financial products from a bank or other financial institution, and some people have more than one. In this context, the ability of lending organizations to distinguish good customers from bad ones is crucial to ensure the sustainability of the credit business and will require more information to assess if you are a reliable potential borrower. As such, bank account information will not show up on a credit report or impact your credit score but they are still linked to your ability to gain credit - an ability that is critical to have as a small business owner.

For larger loans, such as a business loan or commercial mortgage, lenders will ask for information relating to your cash such as checking account balance and saving account balance, investments, such as stocks and bonds, and any other property or material assets that may be put up as collateral.

Do take note that revenue is a major criterion to qualify for business loans as it reflects the strength of your business. Intuitively, if a borrower’s monthly revenue is below the minimum loan repayments, it is highly unlikely that the borrower would pay on time or pay at all.

While your revenue gets you in the door to apply, lenders typically want to look at other financial information to ascertain that you can repay what you borrow. This may include your balance sheet, cash flow, profit and loss (P&L) statement, bank statements in the past few months as well as business tax returns in the past two years.

Lenders may also request for your personal account information, such as monthly salary and bank statements, to ascertain your debt-to-income ratio and your capacity to make monthly payments on time. This is because there is an underlying assumption that the responsibility and reliability of the business are only as good as the business owner at the helm. Additionally, some business loans may require you, as the company owner, to put up a personal guarantee or pledge your own personal assets as collateral.

For small business owners, personal credit and business credit are very much linked and will impact your business. That said, for the reasons of professionalism, protection, preparedness, and purchasing power, it is vital for you to have a business bank account that is separate from your personal one.

Benefits of business bank accounts

1. Professionalism

In business, image and impression matter. If you are writing checks out of a personal account, clients and vendors may think that the business is still very new or may perceive your business to be a ‘hobby business’.

Additionally, in a day and age where consumers prefer to pay using credit cards over cash, a business account is a prerequisite if you are keen to open a merchant account that accepts credit cards as payment.

At the end of the day, a dedicated business account will help you build a professional edge and convey that you are open for business.

2. Protection

Business banking offers limited personal liability protection by keeping your business funds separate from your personal funds. This is important as businesses, such as corporations, can be regarded as a separate legal entity from its owners and thereby, requires its own dedicated account. This also prevents you from unnecessarily sharing details to your personal account as business accounts allow for multiple signers. This means that your partner or employee can take over the administrative or financial duties while you focus on other revenue-making aspects.

3. Preparedness

Having a separate bank account means that you do not have to untangle your personal transactions from your business ones which will indefinitely make yearly bookkeeping easier, cleaner, and more accurate. This will go a long way to help you manage your business and monitor its profitability. Not only will a business account help you file taxes accurately and on-time, you are able to deduct business expenses from your tax return and use these account statements as proof to IRAS that these are legitimate expenses.

4. Purchasing Power

With a separate business bank account, you are able to apply for a corporate credit card. With this line of credit, it can help with your business cash flow as you are now able to make purchases to help fulfill business orders. Without it, you may not be able to have enough cash on-hand to finance these necessary purchases. Additionally, with a line of business credit, you will not be personally liable for business debts.

Furthermore, corporate credit card accounts will kickstart your business’ credit history. Each credit issuer will report your business’ credit activity to business credit bureaus, Equifax, Experian, and Dun & Bradstreet and they will score your business within a range of 0 to 100. Generally, a business credit score of 80 and above is encouraged and the best way to get your score in the ‘excellent’ range of 80 and beyond is to pay your bills to suppliers and lenders on time. With an ‘excellent’ credit score, applicants may be more likely to obtain a larger credit line at more favorable contract terms.

How can bank account information help?

The accurate assessment of credit risk is of utmost importance for lending organizations. Although credit scoring is a widely used technique to evaluate a potential borrower’s creditworthiness, it is only one part of the process, especially in this current climate of high unemployment and general economic uncertainty. By demonstrating that you and your business have the financial resources to repay debt and continue to make payments, this will increase the likelihood of having your application approved. Your financial documents, including bank account information, can help lenders evaluate your business' creditworthiness and proof of reliability more precisely, which may increase the amount of credit they decide to extend to you.

Although business checking accounts may not impact your credit report, it still makes prudent sense to have a separate business checking account for easier and better management, as well as access to better credit terms.

About the author

Dexter Lam

Written by Dexter Lam

Dexter is the Growth Strategy Manager at Flowcast and Tillful. Living at the intersection of finance and technology, he is focused on building processes that enable business owners to more effortlessly gain access to financing and credit.

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