Does Savings Affect a Credit Score?

When you apply for new credit, whether a car loan or mortgage, or a credit card at your favorite store, chances are that the lender will check your credit score. Your score, commonly known as the FICO score, is a snapshot of your creditworthiness based on the information in your credit report. While your credit score reveals a lot about your financial picture, it does not show everything.

Calculating Credit Scores

The FICO calculation is based on a formula developed by the Fair Isaac Corp. Using data from your credit report, your score is based on your payment history, the amount you owe, the length of your credit history, how many new accounts you've applied for and the type of accounts you have. Each of these factors is weighted differently. Your payment history and the amount you owe are the most important factors, making up almost 70 percent of the overall score in most cases. However, everything in your credit score is based on your credit accounts, such as credit cards and loans. Your bank accounts are not considered in the score, unless you fail to pay money you owe to the bank for overdrafts or fees and the account goes to collections.

FICO Expansion Scores

Because some people have limited credit history, Fair Isaac developed the FICO Expansion Score. This score assesses your history with creditors that do not traditionally appear on a credit report, such as landlords, payday loan companies and bank accounts. Information about your banking history is culled from databases such as ChexSystems, which monitors bounced checks and overdrawn accounts. If you consistently overdraw your savings account, your bank may report it to this database, which will then influence your FICO Expansion Score and your ability to get new credit.

Pay Down Debts

While your savings does not influence your credit score, carrying a large amount of debt while building your savings may not be your best bet. Keeping enough cash on hand to cover your expenses in an emergency -- most experts recommend having anywhere from three to six months of living expenses on hand -- is a good idea, but beyond that, you're better off to use that cash to pay down your debts. Paying down your debts saves you money in the long-term, as you'll pay less in interest. It also improves your credit score, as a high credit score generally requires low balances and plenty of available credit.

Save for Emergencies

Keeping a healthy savings account can indirectly help you maintain a good credit score, as it helps you cover the unexpected expenses that you might otherwise use credit for, such as emergency car repairs. Aim to save 10 percent of your income each month towards emergency expenses. Even if you don't have enough to cover your entire expense, and have to use some credit, you'll still reduce your overall debt by paying at least some cash. If you want to use your credit card to earn rewards, having enough savings allows you to pay the balance in full when the bill arrives. This keeps both your payment history and amount you owe in good standing, and your credit score intact.