Does Opening a CD Hurt Your Credit?

When you apply for a line of credit or loan, creditors typically run a credit check to determine your eligibility. However, your credit isn’t usually checked or impacted when opening a deposit account, such as a certificate of deposit (CD). Generally, opening a CD will not hurt your credit because you’re not borrowing money; a CD is a type of savings account.

With a CD, you give a bank or credit union your money for a set period, and in return, you receive it back with interest when it matures. Some financial institutions may run a “soft” credit check to confirm your identity, which doesn’t impact your credit score. While less common, a “hard” credit check could be run, which might temporarily affect your credit score slightly. It’s worth asking your bank or credit union about their policy on credit checks when opening a CD.

Does Closing a CD Hurt Your Credit?

CDs usually offer competitive interest rates in exchange for keeping your money parked for a set term. If you withdraw early, you may earn less interest and owe a penalty. However, whether you withdraw early or at the end of the term, your credit won’t be impacted since it’s your money. CDs aren’t a loan or credit account, so your actions aren’t reported to the credit bureaus or factored into your credit score.

Can a CD Help Build Credit?

Regular CDs won’t help you build credit on their own since the main types of accounts that appear on your credit report are loans, credit cards, and lines of credit. However, you can use other tactics to bolster and improve your credit:

• Pay all bills on time, every time. On-time payments are the most important factor in your credit score calculation.
• Keep your credit card balances and overall debt load as low as possible.
• Don’t apply for many new credit accounts in a short time, as a large number of hard inquiries can harm your score.
• Get a credit card and use it regularly, making payments on time.
• Avoid closing old credit accounts in good standing to maintain a low credit utilization ratio.

What Is a CD-Secured Loan?

While a typical CD account doesn’t help you build credit, some financial institutions offer loans secured by a savings account or CD, called credit-builder loans. These loans are designed to establish credit history. You get approved for a small amount, usually $1,000 or less, and repay it over a short term. The bank or credit union sets the funds aside in a CD or secured savings account while you make payments. Your lender reports your payments to the credit bureaus, helping you establish credit history. Once you pay off the loan, you get the money plus interest.

How to Open a CD

Ready to open a CD? Follow these steps:

1. Shop around for rates: CD interest rates can vary across banks and credit unions. Research to find the best rate.
2. Compare terms: Account terms and rules can vary. Look for penalties for early withdrawal and other conditions.
3. Apply to open an account: If your CD of choice is with a new financial institution, you may need to complete extra steps to become a customer.
4. Fund it: Transfer money to fund your CD. Once approved, pretend that money doesn’t exist until the CD matures.

The Bottom Line

From opening a CD to closing one, these accounts generally don’t impact your credit. The only time it could make a difference is if your financial institution runs a hard credit inquiry upon application. If you’re worried about a potential ding to your credit score, take other measures to improve your credit score. Consider signing up for free credit monitoring to keep tabs on how your financial activities impact your credit.