Both your banking and credit activity are key elements that make up the larger picture of your overall financial health. In most cases, all you need to do is manage your spending and avoid taking on more debt than you can pay off and you’ll be in good shape.
With that said, few people realize that the seemingly harmless act of closing a bank account can have implications for your credit. Here’s what you need to know to protect yourself when closing a bank account.
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Do bank accounts normally affect your credit score?
No, bank accounts don’t usually contribute to your credit score, either positively or negatively. This is because your credit score is calculated based on the information shown in your credit report. This consists of credit accounts (such as credit cards and loans) and records showing how you’ve handled your debts.
Bank accounts aren’t considered credit accounts because they hold your own money rather than money you’ve borrowed from a creditor. They give a snapshot of your finances but don’t necessarily reveal any insight about your creditworthiness.
The result is that banks aren’t listed on your credit report and don’t affect your credit score.
When can closing a bank account hurt your credit score?
There is one case when closing a bank account can (indirectly) hurt your credit score: when you close the account with a negative balance.
This can happen if you overdrafted (spent more money than you actually had in the account) or had unpaid banking fees when you closed the account.
In this case, your bank or credit union may send your unpaid balance to a debt collection agency, a company that specializes in collecting overdue debts. The agency will usually report your debt to one or more of the three major credit bureaus (Experian, Equifax, and TransUnion), causing a collection account to appear on your credit report.
Collections are incredibly damaging to your credit score, so if you find yourself in this situation, it’s best to pay off your collections as soon as possible or negotiate a debt settlement agreement (ideally where they update your account to show that it’s fully paid).
Unfortunately, even after you fully pay them off, collections can stay on your report for 7 years. During this time, they’ll bring your credit score down and make it hard to secure loans. Needless to say, it’s important not to close your account with unpaid fees to avoid this scenario.
Other ways closing a bank account can affect your financial health
If you leave an unpaid balance on your bank account or abuse your banking services, then negative marks may also appear on your consumer banking report.
This is a different document than your credit report; it’s a record of your banking activity instead of your credit activity. Banks and credit unions sometimes use these reports (which are often produced by the company ChexSystems) to assess your eligibility for financial products and services. 1
Unlike your credit report, your banking report has no bearing on your credit score. However, it can still affect your financial future by making banks and credit unions reluctant to work with you.
Below are a few examples of negative marks that can appear on your consumer banking report: 2
- Involuntary account closures
- Bounced checks and overdrafts
- Unpaid negative balances
- Account, card, or ATM abuse
The takeaway is that, even if closing your bank account won’t directly hurt your credit score, there will still be a record of it, and doing so carelessly might damage your financial health. Be sure to close your accounts in the right way—voluntarily, and without leaving any unpaid fees.
How to safely close a bank account without hurting your credit
When you close your bank account, take these steps to ensure that you’re not damaging your finances or credit by leaving an unpaid balance:
- Tell your bank that you want to close your account: If you’ve decided you no longer want your bank account, it’s not enough to simply stop using it. Contact your bank to formally close your account.
- Check whether you need to pay any fees: Regardless of whether you or your bank is initiating the account closure, it’s important to actively communicate throughout the process so that you know about any fees you need to pay. You may have unpaid fees from previous transactions (e.g., overdraft fees) or simply routine account closing fees.
- Pay your fees upfront: If you have any of these fees, don’t leave them until later. Either pay them upfront or leave enough money in the account to cover the full cost.
- Check your balance twice: Always double-check that you aren’t leaving anything unpaid—both before and after you close the account.
- Transfer recurring transactions to a new account: If you have autopay or recurring payments set to come out of your account to cover your monthly bills, arrange to have your payments come out of a new bank account. This will prevent accidental overdrafts on your old bank account and late payments or charge-offs on any of your current credit accounts.
It’s also a good idea to keep records of all documents, reference numbers, and communications you had with your bank throughout the closure process. Update or remove your ACH (automated clearing house) and debit card information on all of your creditors and service providers (e.g., utility company).
In addition to protecting your credit, taking the steps above will ensure that your information doesn’t get into the wrong hands, which will protect you from fraud.