It's important to have money in savings at all times in case an unplanned bill arises. It could be a car repair, a medical bill, or something else.
Letting your savings account balance get down to $0 could mean struggling to pay for unexpected expenses and racking up costly debt in the process. It could also mean falling behind on existing bills.
Carrying a large amount of debt has the ability to drag down your credit score. The same holds true for being late with bills. But if your savings account balance gets down to $0 and neither of those things happen, then your credit score may not be affected at all.
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Savings don't impact credit scores
There are five factors that go into calculating a credit score:
- Your payment history, which speaks to how timely you are with bills
- Your credit utilization, which speaks to how much of your revolving credit limit you've spent
- Your credit history length
- Your credit mix, which speaks to the different types of accounts you have
- Your recent credit card or loan applications
But you'll notice that none of these factors consider the amount of money you have in the bank. So if your savings account balance gets down to $0, it may not be a great thing from a general financial standpoint. But that alone won't cause your credit score to take a hit.
In fact, banks don't even report savings balances to the credit bureaus. So even if you have $50,000 in savings, that by itself won't do a thing to help your credit score improve.
Of course, having a large amount of savings might make you more likely to pay bills on time and keep your credit card balances to a minimum. And those factors could help your credit score rise or stay in good shape.
Similarly, if you don't have any money in savings and are late paying a bill because of that, your credit score might take a huge hit (since unfortunately, a single late payment has the potential to cause a lot of damage, especially if your score is high to begin with). But if you have a $0 savings account balance and you pay every bill on time, all the while avoiding debt, then it may not have an impact on your credit score at all.
Do your best to build your savings
Having $0 in savings can be stressful, because you know you're potentially one unplanned expense away from taking on a pile of debt. But you can at least rest assured that your credit score won't be impacted by a $0 savings balance.
That said, it's important to scrounge up some cash reserves if your balance is sitting at $0, so if that's your situation, it may be time to cut back on leisure spending until you have at least a small cushion. Getting a side job could be another way to build some savings quickly -- and avoid running into trouble in the absence of having a financial safety net. The gig economy is booming, though, so chances are, if you're willing to put in the time, you'll be able to find a way to earn some extra cash.
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