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Understanding the Impact of CDs on Your Credit

At O1ne Mortgage, we understand that managing your finances can be complex. If you have any mortgage-related needs, feel free to call us at 213-732-3074. In this article, we will explore how opening and closing a Certificate of Deposit (CD) can affect your credit score.

Does Opening a CD Hurt Your Credit?

Generally, opening a CD will not hurt your credit. A CD is a type of savings account, and opening one usually does not require a credit check. However, some financial institutions may perform a “soft” credit check to confirm your identity, which does not impact your credit score. In rare cases, a “hard” credit check might be conducted, which could temporarily affect your credit score slightly. It’s always a good idea to ask your bank or credit union about their policies.

Does Closing a CD Hurt Your Credit?

Closing a CD, whether early or at the end of its term, does not impact your credit score. Since a CD is not a loan or credit account, your actions related to it are not reported to the credit bureaus. However, withdrawing money early may result in penalties and reduced interest earnings.

Can a CD Help Build Credit?

Regular CDs do not help build credit because they are not reported to credit bureaus. To improve your credit score, consider the following tips:

• Pay all bills on time, including credit cards and utilities.
• Keep your credit card balances and overall debt low.
• Avoid applying for multiple new credit accounts in a short period.
• Use a credit card regularly and make timely payments.
• Keep old credit accounts in good standing open.

What Is a CD-Secured Loan?

While a typical CD does not help build credit, a CD-secured loan can. Some financial institutions offer credit-builder loans secured by a CD or savings account. These loans help establish a positive payment history, which is reported to the credit bureaus. Once the loan is repaid, you receive the funds plus any interest earned.

How to Open a CD

Ready to open a CD? Follow these steps:

1. Shop around for rates: Compare interest rates across different banks and credit unions.
2. Compare terms: Look at account terms and rules, including penalties for early withdrawal and the ability to increase your interest rate during the term.
3. Apply to open an account: Complete the application process, which may include additional steps if you are not already a customer of the financial institution.
4. Fund it: Transfer the required minimum amount to fund the CD and let it grow until maturity.

The Bottom Line

Opening and closing a CD generally does not impact your credit score. If a hard credit inquiry is conducted, its effect will be minor and temporary. For more personalized advice and assistance with your mortgage needs, contact O1ne Mortgage at 213-732-3074. We are here to help you navigate your financial journey with confidence.

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