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Reply To: Does Opening a CD Affect Credit Score?

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Grace Young
Keymaster

A Certificate of Deposit (CD) is a secure way to grow your savings over a fixed period while earning interest. Unlike traditional savings accounts, CDs lock your money for a specified term in exchange for a higher interest rate.

Many people wonder if opening or closing a CD affects their credit score. So, do CDs impact your credit report, and what financial actions influence your credit score?

What is a Certificate of Deposit (CD) and How Does It Work?

A Certificate of Deposit (CD) is a time-bound savings account offered by banks and credit unions. When you open a CD, you deposit money for a fixed period, ranging from a few months to several years.

During this term, your funds earn a higher interest rate than standard savings accounts. When the CD matures, you receive the initial deposit and accrued interest. However, withdrawing funds early typically results in penalties.

Do Bank Accounts Like CDs Appear on Your Credit Report?

Bank accounts like Certificates of Deposit (CDs) do not appear on your credit report since they aren’t considered loans or credit products. Credit bureaus only track accounts where you borrow money, such as credit cards, loans, and lines of credit.

Since CDs are deposit accounts and involve no borrowing or repayment, they aren’t included in your credit report and won’t directly influence your credit score or history.

How Opening a CD Can Impact Your Financial Profile?

While opening a CD doesn’t impact your credit profile, it can improve your financial stability. CDs are safe investments and can help diversify your savings.

However, it is essential to confirm with your bank whether they perform a hard or soft inquiry during the application process. A soft inquiry won’t affect your credit score, but a hard inquiry could temporarily lower it by a few points, which is something to consider.

Does Opening a CD Affect Your Credit Score?

Opening a CD does not affect your credit score. CDs are not borrowing products, so they usually don’t involve a credit check. Even if a credit check is conducted, it’s usually a “soft” inquiry that doesn’t impact your score.

However, some banks might perform a “hard” inquiry, temporarily decreasing your score. As discussed earlier, confirming with your bank is always a good idea to avoid surprises.

What Financial Actions Can Influence Your Credit Score?

Actions like paying bills on time, maintaining low credit card balances, and not applying for multiple credit accounts within a short period significantly influence your credit score.

Late payments, high credit utilization, and hard inquiries can hurt your score. A solid credit history with credit cards and loans is essential for a good credit score. While CDs don’t impact your credit, good financial habits are key to building and maintaining a healthy credit profile.

Conclusion

Opening or closing a CD generally doesn’t affect your credit score as these accounts are not credit-related products. However, some banks may perform a hard inquiry, temporarily impacting your score.

Use tools like the Beem financial app to monitor your credit health and financial goals. Beem helps you track your credit score, manage your finances, and plan for future investments, making it an excellent resource for financial management.

Read related blogs: What is a Good Credit Score: Understanding Creditworthiness

People Also Ask

Does a CD help build credit?

No, a Certificate of Deposit (CD) doesn’t help build credit. CDs are savings products, not credit accounts. Since they don’t involve borrowing or repayments, they aren’t reported to credit bureaus and don’t contribute to building credit history.

Does withdrawing from a CD affect your credit score?

Withdrawing from a CD, whether early or at maturity, does not impact your credit score. CDs aren’t linked to credit reporting, so your withdrawal actions are not reported to credit bureaus and won’t influence your credit history.

Do savings accounts show up on your credit report?

No, savings accounts do not show up on your credit report. They are not considered credit products since they don’t involve borrowing or repaying funds. As a result, savings accounts aren’t reported to credit bureaus or factored into your credit score.

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