Does My Savings Account Balance Affect My CIBIL™ Score

An individual’s bank account information is not reflected on his/her credit report. It also does not impact the credit score.

While applying for loans and/or credit cards, lenders first check the credit score and credit report to verify all the past and present credit accounts and loans. They also look at the applicant’s payment history. With this information, they can also gauge how much credit is available with the individual, how much is put to use, the number of soft or hard inquiries in recent times, etc.

Additional Reading: The Big 5 Top Factors That Affect Your Credit Score

Can a savings account balance affect your credit score?

Credit scores are primarily based on the information that is reflected on a consumer credit report. This includes a detailed credit history of credit cards and loans, any unpaid accounts, collection instances, etc. All creditors furnish all credit-related information to the credit reporting agencies like CIBIL™.

Savings accounts are not part of credit reports since no borrowing or debt is related to them. A savings account or related information that is on your credit report will not have an impact on your credit score. The same goes for the activities in a savings account, like deposits and withdrawals. Since such information will not be part of your credit reports, it is not considered while calculating your credit scores.

What Affects Your Credit Score?

When you apply for debt, it triggers an inquiry and this appears on your credit reports and considered in your credit score. There are two kinds of inquiries:

• Soft inquiries are when lenders review your credit for preapproval of a loan or credit card. This is applicable even when you request to review your credit report. These are not considered your credit scores.
• Hard inquiries are when a creditor takes your credit report to decide whether to grant you the credit products that you may have applied for. These are calculated into credit scores.

When you borrow debt, the money from your savings account can help in making timely repayments every month and avoid carrying too much debt. This, in turn, helps to maintain a good credit score.

Payment history: If you don't have enough funds to repay your loan and credit card bills on time, you may end up with a poor credit score on your credit reports. Creditors generally notify the credit reporting agencies when you are lagging in your payments after 30 days from the due date. Since payment history is considered the topmost factor in calculating credit scores, late payments can seriously damage the credit score.

Credit utilization rate: Credit utilization is a measure of your credit balances as compared to your total credit limit. If you don’t have sufficient balance in your savings account to deal with unexpected expenses, it can affect your credit score. This will especially be noticed when you use your credit card to make debt payments instead of using a savings account balance. A credit card balance that is nearing the card's credit limit increases your credit utilization rate and may harm your credit score.

How can savings account indirectly help credit?

Maintaining sufficient balance in your savings account is an important step in ensuring good credit health. Enough money in a savings account can also be used during a crisis, meeting your current financial obligations and helping your future borrowing needs, especially a home loan. Here is how a savings account can further help in building credit:

• Emergencies: Money saved in an emergency account will let you pay for crucial and unanticipated expenses without creating the necessity to borrow. For instance, if you have to visit a hospital for a medical emergency, you may have to pay a substantial sum before your health insurance can help. Using balance from a savings account can prevent you from using a credit card facility which can impact your credit utilization ratio negatively.
• Timely Repayments: Savings account balance can give you peace of mind as far as covering your bills is concerned. This, especially if costs have gone up or if your earnings don’t come through as expected. If you have borrowed a car loan, a savings account balance can ensure that the repayments get covered and your credit report remains unaffected even in case you lose your job or some unforeseen expenses come up.
• Easy Loan Approval: If you're planning to borrow a home loan, having a sufficient balance in a savings account will make you an ideal candidate in the eyes of the lender. It helps in lowering the lender's risk estimation. Most lenders will verify if you have at least two months' worth of repayment balance set aside in a savings account.

Additional Reading: Savings Account Vs Current Account

Conclusion

Savings is a key element in your overall financial well-being. Having a savings account balance while approaching a lender to borrow debt can improve your chances of easily securing it at favourable terms.

Savings Account Balance Affect My CIBIL™ Score FAQs