Credit Reports and Checking Accounts: Do Banks Place Hard Inquiries?

We got a great question from a blog reader called "Rainman" yesterday:

I have noticed that a lot of banks now do hard inquiries against your credit report just to open a checking or savings account, while other institutions are satisfied with a soft inquiry. Given that soft inquiries get an institution the information they need, why must some institutions damage your credit report with a hard inquiry? Is there anyone trying to pass any legislation to prevent this in future? It seems unfair that your credit score declines when you are lending a bank your money

Under the requirements of the Patriot Act, all banks must do an identity check on a new customer. They use "customer identification programs" (CIP) that compare your name, address, date of birth, and other facts to the information contained on your credit report. This identity verification process does not count as a hard inquiry and probably isn't even recorded as a soft inquiry either. Your credit score would not be damaged by that step.

The CIP regulations require institutions to implement reasonable procedures for:

• Verifying the identity of any person seeking to open an account, to the extent reasonable and practicable
• Maintaining records of the information used to verify the person's identity, including name, address, and other identifying information
• Determining whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency

Banks also review ChexSystems and sometimes credit report data during the process of determining if a customer qualifies to open a new account. This is a separate step from the identity verification and could be recorded as a hard inquiry. Under FCRA regulations, the bank has to have a permissible purpose such as "intend[ing] to use the information in connection with a credit transaction involving the consumer" in order to pull a credit report and must obtain the consumer's consent first.  A hard inquiry like this could cause a small credit score ding.

Now we know that banks can check credit reports, but do they really? To determine each bank's policies I called customer service at the top ten financial institutions in the US.  I did the leg work so you wouldn't have to, and trust me when I say it was pretty terrible! It took me about an hour to call these ten banks. I'm not convinced that the representatives knew what they were talking about, but here are their answers:

• Bank of America - ChexSystems review only.
• Citibank - They do check credit reports but it is recorded as a soft inquiry.
• Chase - ChexSystems review only.
• Wachovia - They do check credit reports and it is recorded as a hard inquiry.
• Wells Fargo - They do check credit reports and it is record as a hard inquiry (although the representative told me at one point that "there is no difference" between a hard and soft inquiry).
• Washington Mutual - ChexSystems review only for branch and online applications. No record review for phone applications.
• HSBC - ChexSystems review only.
• SunTrust - ChexSystems records and Beacon Scores are used for review. Does count as a hard inquiry.
• US Bank - ChexSystems review only.
• Citizens Bank - ChexSystems review only.

In conclusion, this seems to largely be an urban legend. Only a few bank representatives said that they checked credit reports and that it would count as a hard inquiry. If you are concerned about having your credit report reviewed when you open a checking or savings account, I recommend calling the bank first to ask about their policies. It seems like it will be a non-issue in most cases.

As for organizations fighting against banking credit checks, PrivacyRights.org and the ACLU are active in protecting consumers' rights. You can also find more information with the National Consumers League, ConsumerAffairs.com and ConsumerAction.org.

Have you received a hard inquiry from applying for a checking or savings account? Report your case in the comments section below!

Comments

[Liz S.]

MyMoneyBlog has done some interesting research into this.

His list is based on his accounts and his credit reports: http://www.mymoneyblog.com/archives/2006/03/banks_that_do_a.html

I don't know if I would conclude it as mostly an urban legend if 3 out of the 10 you called seemed to think they do hard inquiries. That seems like a high number to me and I bet at least a couple of those banks were just guessing. From the blog link I posted above, taking into account his bank listing (not his brokerage listing), 4 did pull hard inquiries, 5 did not. Even if it's not a majority, I'd call it a trend.

[Rainman]

Thanks Emily for responding to my inquiry. I appreciate your feedback.

As far as I understand the system based on reviewing my own credit reports and FICO scores, there are two types of inquiries; 1) those that display to others due to an authorized account opening (now including checking/savings accounts, not just credit), and 2) those that only I can see such as promotional inquiries, and account reviews. In opening up recent checking and savings accounts, I received hard or visible inquiries from Bank of America, CitiBank and Scottrade, to name a few. In all cases I was not applying for any credit but to be fair their applications did indicate that I was authorizing that they check my credit report. My experience seems to be also supported by this Fatwallet thread.
http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=260724

At the same time, I have seen that other institutions have obtained the information they needed to verify my identity without making it a "hard" visible inquiry on my credit report. So it seems that the hard inquiry is not necessary in order to comply with the Patriot Act.

I'll take you up on your recommendation and see what these consumer advocate organizations suggest. It seems to me that more people should be upset with hard inquiries for opening checking and savings accounts given that your credit score is key to low interest rates on borrowing and even low premiums for auto insurance. So I was hoping to stir the pot here and get people on the bandwagon to fight this injustice.

From talking to the customer service teams it seemed like there was a big difference in the policies for opening an account in a local branch, online and over the phone. The Patriot Act verification should never cause a hard inquiry, but opening an account could.

[henry1]

I can tell my experience on Bank of America, the first one in your list. I already have an excellent boa relationship in checking account. I recently went to a local branch to open another checking&savings account.The reprsentative was a loan officer at the branch and she confirmed me that only a review or soft inquiry will be done since i am an existing customer. However, after couple of weeks, I could see that there was a hard enquiry on my credit and my credit score went down a bit. I called up the representative and I found that I was wasting my time talking to her and trying to make her understand. I am sure other banks also do the same. There is no hard and fast rule. There is a 50-50 chance that a hard pull will be done. You are always at bank's and credit card companies mercy :))

[Brian]

Wells Fargo got me. THey told me they weren't running a credit check, but it did show up as a hard inquiry.

I had the branch manager write a letter on bank letter head admitting it was an error on their part, and sent it to the credit bureaus.

[Eric V]

THE INFORMATION IN THIS POST IS INCORRECT, AND SHOULDN'T BE POSTED AS GOOD ADVICE. CITIBANK WILL PULL A HARD CREDIT INQUIRY ON YOU AND WILL DENY YOU IF YOUR CREDIT IS BAD!!!

[EmilyPeters]

Hi Eric! Was that for a citibank checking account or for a citibant credit card account?

[Deirdre Saoirse Moen]

Bank of America, at least when opening a checking account at a branch, most assuredly does pull a hard inquiry upon account opening. They didn't pull hard or soft for the savings account I opened later.

[Rick]

Ok guys! Most major banks do pull a hard inquiry when you open a savings account or checking account. This does suck because it does obviously take a toll on your credit score. ATT home phone service does a credit check now as well.. I really do feel there should be some legislation against this because what is the point. Banks already use chex systems to see if you've had any returned checks, so what's the point of running a credit check?

I was told by a bank President (small, local) yesterday that banks are losing more money on checking account fraud than they are on lending activities. Thus, the credit reports. They ARE pulling hard reports and they might not even tell you they will.

[ReVeLaTeD]

Here's something that needs to be considered.

Banks fluctuate their policies like the weather. They're not consistent. Laws need to be passed to stop some of these actions.

Take Wells Fargo. They pull your credit for ANY account submitted online. No credit pull if you walk into a branch. Dunno about phone. My problem is, why do you need to run credit just because someone is submitting online? If you need to verify identity, accept the application with a tentative approval and request ID docs. There's absolutely no reason to run credit AT ALL, or if you're using it for ID purposes there really should be no need for denial, but I've been denied a DEPOSIT account due to an old BK. That's inexcusable.

For your reference (is a credit check pulled? YES/NO):

Wells Fargo - Online YES, in branch NO
CitiBank - Online YES, In branch NO
HSBC - Online NO
US Bank - Online YES, In branch YES

[Elaine]

Citibank pulls hard credit reports! I opened a checking account and 3wks later made a CD, both in a branch. I recently noticed that this bank even pulled two times of my credit reports and of course they lowered my credit scores. One time for checking my identity is acceptable but why a second time for merely a CD? I am pretty upset. I would never bank with Citi if I knew all these.

I have had terrible experiences with Wells Fargo in regards to hard inquiries. They have checked my credit each time the CD roll over. With a 6 month CD, together with Wells not always doing the credit checks on time, I've had 3 hard inquiries on my credit report w/in a one year period because of them. I also find that their bank representatives (even branch managers!) are utterly uneducated about inquiries. Before I researched and know more about hard inquiries, they've told me these various lies:

1) Wells Fargo doesn't pull hard inquiries (which is a false statement of course, since I see them on my credit report!)

2) The inquiries will be lifted once the CDs are funded

3) And after that when #2 turned out false (of course!) also, they said inquiries disappear after 3 months.

The Patriotic Act only requires the bank to know its customers. With a new customer or any suspicious activities (like large amount of incoming foreign funds), I can understand that they want to conduct a check on the customer. But the Patriot Act does not require the banks to damage customers' credit!

[Jim]

America First C.U bank (Utah)just posted a hard pull on my credit file.I applied online.

[Nonaii]

The rep who told you there was no difference between a hard pull and a soft pull is full of sh-t, and should have asked a supervisor before making that assumption.

I spoke to several Wells Fargo employees, by phone and inside a branch. Only ONE of them said that it's possible for a hard pull to be pulled, and that was only after I raised hell because in-branch and on phone I was assured that it would be a soft pull. They gave me the numer to the fulfillment dept to discuss this and fulfillment said they didn't know what I was talking about and Wells Fargo had no control over whether a hard pull or a soft pull would be initiated -- that it was up to the credit reporting agency!

Today, I just found out that Wells Fargo charged me SALES TAX on a checking account. They claim that my state forces them to. I have two other banks, one credit union and one bank and neither one of them has EVER charged me sales tax for having an account with them. That's on top of Wells Fargo charging me for additional services I did not ask for -- with additional sales tax for the fees associated with each service!

I wish there was a Chase in this state (New Mexico). This is horrible. Wells Fargo reversed the sales tax and charges for the services I did not ask for, but I think this is disgusting. On top of that, Wells Fargo's money market interest was the lowest of the interest I've received! I set up the account because I wanted access to their credit card in 6 to 12 months time. A credit card is not worth this; I can just see some poor mother getting a huge NSF fee because Wells Fargo's sales tax took her under. I don't want to be that poor mother.

[danio]

Charles Schwab Bank hit me with a hard inquiry that reduced my fico score when I opend a checking account with them (no overdraft protection)! I called them and asked for a letter stating that their inquiry was not in connection with extending credit to me. The women I spoke to refused to provide the letter becuase "this is not the service they provide!!! They are not in the business of sending such letters!" She refused to give me contact information to her supervisor. Unbelievable, isn't it!
Charles Schwab Bank, you suck. You won't get any more of my business.

Two complaints-
1. Wachovia pulled my credit report after the checking account had been opened for over 4 years. They would say that they had the right to do this to find out whether I was meeting the terms of the tranaction pursuant to the FCRA. I think that they could very easily find this out by checking their own records. Pulling a credit report and damaging my credit was just not necessary.
2. Suntrust pulled a credit report the day I opned a checking account there. No doubt they would say that they needed to verify my identity pursuant to the Patriot Act. This is BS; they could veriffy my identity from my driver's license, If that's good enough to register to vote and do other things, why wouldn't it be good enough for SunTrust? I'm planning to sue them in District Court before the year is out for invasion of privacy.

[Ron]

Citi Bank pull a hard inquiry when I open an IRA and I got a notice from the cedit agency.

Citi bank is claiming the only pull soft inquiries.

[Credit inquiry removal]

I have found that the inquiry removal process is a pain in the butt. Sometimes they remove inquiries in 24 hours sometimes it takes weeks or months and multiple letters.

[Vinay B]

Oct 19th.

I spoke to Bank of America, and they say they'll pull my credit report for me to be able to open a checking account.

BS ! Like they're lending me money !!