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When closing a bank account, a common question people ask is whether it will negatively impact their credit scores. Fortunately, closing a savings or checking account that’s in good standing won’t hurt your credit in any way.
However, there are a few things to consider before closing your bank account to make sure it’s done the right way and doesn’t end up causing any credit-related problems.
How credit bureaus fit in
The 3 major credit bureaus
Credit bureaus Equifax, Experian and TransUnion maintain reports on how consumers manage borrowed money. As such, information in a person’s credit report may include balances and payment history on debts such as mortgages, personal loans and credit cards.
What’s not typically included in a credit report is bank account information, so closing an account in good standing won’t affect your credit.
Closing a bank account with a negative balance is a different story, however. If you close an account that’s been overdrawn and don’t resolve the negative balance (including paying any overdraft fees), the bank may send the debt to a collection agency. In turn, the agency can notify the three credit bureaus, which may result in a lower credit score and remain on your report for up to seven years.
ChexSystems
ChexSystems is a specialty reporting agency that operates under the Fair Credit Reporting Act. Financial institutions report consumer information to ChexSystems such as a record of bounced checks and unpaid negative balances. Therefore, closing a bank account that’s not in good standing can show up in one’s ChexSystems report.
Information stays on your ChexSystems report for five years, and it can be used by banks when deciding whether to approve bank account applications.
Closing a bank account in good standing won’t negatively affect one’s ChexSystems score.
How to close a bank account without hurting your credit
Having an unpaid negative balance on a closed bank account could ultimately result in reports to a collection agency and to the credit bureaus. If your plan is to close your existing bank account and open a new bank account elsewhere, ensure you’ll do so without hurting your credit by following some steps:
1. Open your new bank account before closing the old one. It may take some time to fund the new account or order checks, so it’s important to retain use of the old account in the meantime for things like online bill payment, check writing and sending money through services such as Zelle.
Otherwise, your credit could be hurt if you temporarily don’t have access to your methods of bill payment.
2. Fund the new account and reroute direct deposit there. Put money into the new account, whether you’re depositing cash at a branch or transferring funds electronically from the old account to the new one.
If your paycheck is set up to be directly deposited into your old bank account, provide your employer with your new bank account information and request the direct deposit be rerouted to the new account.
3. Update automated bill payments. Once you have adequate funds in the new account, update any automated bill payments to be deducted from this account. These may include your rent or mortgage, student loans, utilities, insurance premiums, gym memberships and other subscriptions.
Look through the transaction history of your old bank account to ensure you’re not forgetting any such automated payments, which could potentially result in a negative balance for the old account.
4. Close the old account. After you open the new bank account, it’s a good idea to wait at least a month or so before closing the old one. This gives you a chance to make sure your direct deposit is rerouted successfully and all automated bill payments have been transferred.
Bottom line
Closing a bank account that’s in good standing won’t hurt your credit score. If you have a negative bank balance, however, it’s important to resolve the balance before closing the account. Otherwise, your credit could suffer as a result.
Making sure your direct deposit and automatic bill payments are running smoothly in a new bank account before closing your old bank account can also help you avoid missed payments and potential credit problems.
FAQs
Closing a bank account that's in good standing won't hurt your credit score. If you have a negative bank balance, however, it's important to resolve the balance before closing the account. Otherwise, your credit could suffer as a result.
Is there a downside to closing a bank account? ›
Closing an account may save you money in annual fees, or reduce the risk of fraud on those accounts, but closing the wrong accounts could actually harm your credit score. Check your credit reports online to see your account status before you close accounts to help your credit score.
Will my credit score be affected if I close a bank account? ›
Closing a bank account typically won't hurt your credit. Your credit score is based on how you manage borrowed money, and your checking or savings accounts aren't debts. So bank account closures aren't reported to the three major credit bureaus: Experian, TransUnion and Equifax.
Will closing unused bank accounts help my credit score? ›
Not directly, no. Information about your bank account generally isn't included on your credit report because it's not thought of as credit. So closing your bank account shouldn't affect your credit score. But if you close your bank account when you're overdrawn, you could find that this does have an impact.
Do you lose credit score for closing account? ›
While it might seem like holding fewer credit cards could help your credit, losing the available credit limit on the closed account can increase your utilization rate, which can hurt credit scores. If you're considering closing a bank account, however, be assured that it will have no direct effect on your credit.
Is there a penalty for closing a bank account? ›
An early account closure fee is a predetermined amount of money — usually between $5 and $50 — that the bank will charge you for closing your account soon after opening it. Of the banks that charge this fee, many will impose it upon customers who close their accounts within 90 days of opening.
Do banks really care if you close your account? ›
Generally, closing a bank account doesn't affect your credit
But your credit could suffer if you're not careful when you close an account.
How much will my credit score drop if I close an account? ›
While there's truth to the idea that closing a credit account can lower your score, the magnitude of the effect depends on various factors, such as how many other credit accounts you have and how old those accounts are. Sometimes the impact is minimal and your score drops just a few points.
What is a valid reason for closing a bank account? ›
There are many reasons banks can close your account without notice. The most common reasons include suspicious account activity, too many overdraft fees and account policy violations.
How much does a closed account hurt your credit score? ›
Remember, the presence of this type of account on your credit report is a positive. As TransUnion and Experian note, a closed account that shows a positive history of payments is likely to help your credit score. Generally, a closed account with negative history can continue to hurt your credit score for seven years.
If fees are periodically deducted, the account is technically active. “As you let your unused account remain open, you could come to realize that your bank is slowly eating away at whatever money is left,” said McDaniels. “Do not let this happen to you. Close your accounts on your own terms and keep your money.”
What affects credit score the most? ›
The most important factor of your FICO® Score☉ , used by 90% of top lenders, is your payment history, or how you've managed your credit accounts. Close behind is the amounts owed—and more specifically how much of your available credit you're using—on your credit accounts. The three other factors carry less weight.
How many bank accounts should I have? ›
The ideal number of bank accounts depends on your financial habits and needs. You might be happy with just two accounts – checking and savings – or you may want multiple accounts to separate business and personal expenses, share a bank account with a partner or maintain separate accounts for various financial goals.
Is closing bank account bad for credit? ›
The act of closing a bank account, such as a checking or savings account, does not directly affect your credit score. Your credit score is not directly affected by your checking and savings account activity. That includes account closures.
Does closing bank account close credit card? ›
They are not linked to each other except that you are the common entity from your side and the bank is the common entity from its side. Your credit card will continue to be valid and active even if you close your savings bank account.
Will closing a bank account affect a mortgage application? ›
Close old, inactive accounts – they can kill your application. If you're not using an account, it may be worth closing it. Leaving it open might be a fraud risk, and it could display out-of-date details. Having said that, when applying for a mortgage, longer, stable credit relationships are a positive.
What happens when you close your bank account? ›
The bank will check your account to ensure it's in good standing and that you've resolved any outstanding issues before it marks the account as closed. If there are any remaining funds in the account, you should be able to request a transfer to your new account or receive a check by mail.
Is it a big deal to close a bank account? ›
While closing a bank account typically doesn't have a direct impact on your credit score (like, say, having your credit card closed on you), it could become a problem if your account has any outstanding balances, such as unpaid overdraft fees.
What is the rule of closing the bank account? ›
Contact Your Bank
Cancel your bank account. Although financial institutions allow you to do this online, they may require you to make a phone call to customer service or a visit to a local bank branch. Some banks and credit unions may require you to fill out an account closure request form or submit a written request.
