Thinking about switching bank for a cash bonus? Beware of this catch

I’m looking to buy my first home. I am worried because I’ve switched banks quite a few times in the last year through the Current Account Switching Service to make the most of free cash bonuses, and someone told me this might affect my credit rating.

Will switching bank accounts affect whether I can get a mortgage because of the credit checks, and should I be worried?

Splashing out: Many banks have been running switching incentives through the Current Account Switch Service, offering cash bonuses of up to £200 

Helen Kirrane of This is Money replies: It is a little-known fact that when you switch bank account through the Current Account Switching Service, a hard credit check might be carried out.

This is when a company makes a complete search of your credit report. Each hard check is recorded on your report, so any company searching it will be able to see that you’ve applied for credit.

Not all current account applications will need a hard credit check, especially if the account does not have an interest-free overdraft. 

But too many hard credit checks over a short period of time can affect your credit score for six months, reducing your ability to get approved for credit in the future. 

So if you already have a low credit score, this might hinder you when it comes to getting approved for a mortgage. 

We asked three credit score experts to explain further.  

A spokesperson from the Current Account Switch Service replies: When you open a new current account, the bank or building society may run a credit score which could affect your credit rating.

The credit scoring impact of opening a new account can last for up to six months. Opening multiple accounts within a six-month period will mean it will take longer for your credit score to return to normal.

When using the Current Account Switch Service for a full switch, your original account will be closed which can in turn result in a positive contribution to your credit score.

James Jones, head of consumer affairs at Experian replies:  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 ‘hard 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.

Individually, hard footprints typically make only a small impression on credit scores. They also tend to be disregarded after six months and are completely removed from your credit report after a year. 

So unless you’re switching several accounts all at once, then these are unlikely to cause any inconvenience. However, it may be more of an issue if your credit score is already on the low side, especially if you’ve recently made multiple credit applications.

You can boost your chances of being accepted for credit, such as a current account, credit card or mortgage, by reviewing your credit report or score using a service such as Experian. 

Footprint: The credit scoring impact of opening a new account through the Current Account Switching Service can last for up to six months

Helen Kirrane replies: I don’t blame you for wanting to snap up as many switching bonuses as you could get your hands on, especially as you are trying to save for your first home. 

For a chunk of 2023, NatWest ran a £200 switching deal – its highest ever incentive – which led to it snapping up 99,695 more customers than it lost between 1 April and 31 June of this year, so other people clearly had the same idea as you.

Nationwide also relaunched its £200 switching deal in September 2023. These bumper bonuses have since disappeared and the best (and only) switching incentive today is £175 from First Direct.

If your credit score is on the low side, particularly after all your switching, quick wins to boost your score include registering to vote at your current address, reducing any outstanding borrowing, and correcting any mistakes, such as a missed payment reported to the credit reference agencies in error.

James Blower, founder of website Savings Guru replies: Banks typically conduct electronic searches on new customers to establish and verify their identity. They are looking to check the applicant is who they say they are and that they live where they say they do. In order to do this, they use electronic searches from credit rating agencies. 

These aren’t usually credit checks – but some banks offer interest-free overdrafts as part of their current account package, or an overdraft facility (chargeable if used) as standard. 

For those current accounts, banks are likely to put through a credit search as they will want to make sure it is appropriate to offer these to the customer.

It’s highly unlikely that merely applying for some current accounts through Cass alone will be an issue. If you already have a good rating, you are unlikely to have damaged it by opening and switching a few times. 

However, if you don’t have a good rating and have switched and used the free or chargeable overdrafts on some of the current accounts offering cash inducements to switch, then you may not have helped your rating.