Does Closing a Bank Account Affect Credit?

A common concern arises when individuals consider closing a bank account: Will it negatively impact their credit score? This article clarifies the relationship between closing bank accounts and credit, highlighting that bank accounts operate distinctly from credit accounts.

Understanding Bank Accounts and Credit Reporting

Bank accounts, such as checking and savings accounts, are deposit accounts for managing personal funds. They differ from credit accounts, which involve borrowing money like loans or credit cards. Traditional bank account activity, including daily transactions and balances, is generally not reported to the three major credit bureaus: Equifax, Experian, and TransUnion.

Credit reports and scores primarily track an individual’s borrowing and repayment behavior, showing their creditworthiness to potential lenders. These reports detail information like payment history, amounts owed, and the length of credit relationships. Since bank accounts are not credit products, their routine operations do not typically appear on credit reports used for calculating credit scores.

Direct Impact on Your Credit Score

Closing a checking or savings account does not directly impact your credit score. The activity within deposit accounts, including their closure, is not part of the data used to determine your creditworthiness.

Credit scores are calculated based on several factors, including your payment history on borrowed money, the amounts you owe, the length of your credit history, any new credit you have applied for, and the types of credit you use. Since bank accounts do not involve borrowing, their closure, when handled properly, does not directly influence these scoring models.

Potential Indirect Effects

While closing a bank account does not directly affect your credit score, certain scenarios can lead to indirect negative implications if not managed carefully. One such scenario involves unpaid overdrafts or fees. If a bank account is closed with a negative balance or outstanding fees, the financial institution may send the debt to a collections agency. Collection accounts are reported to credit bureaus and can significantly lower a credit score, remaining on a credit report for up to seven years from the date of original delinquency.

Another indirect impact can arise from linked automatic payments and direct deposits. If recurring direct deposits, such as paychecks, or automatic withdrawals for bills and subscriptions are not updated to a new account before closing the old one, payments can fail. Failed payments, especially for loans or credit cards, can result in late fees and defaults, which are then reported to credit bureaus and negatively affect credit scores.

A separate system called ChexSystems tracks checking account activity and problems, such as mishandled accounts or unpaid overdrafts. While ChexSystems is not a traditional credit bureau and does not directly impact your FICO or VantageScore, a negative record can hinder your ability to open new bank accounts. This system is primarily used by banks to assess risk before approving new deposit accounts.

Best Practices for Account Closure

To avoid potential indirect negative effects when closing a bank account, several proactive steps are advisable. Begin by updating all recurring direct deposits and automatic withdrawals. Set up these arrangements with your new bank account before officially closing the old one to ensure a smooth transition and prevent missed payments.

Ensure all checks you have written and other pending transactions have cleared the old account. This prevents unexpected debits from creating a negative balance after closure. Next, zero out the account balance by transferring or withdrawing all remaining funds, confirming no outstanding balances or fees remain.

After completing these financial transfers, obtain written confirmation from your bank that the account is officially closed and has a zero balance. This documentation serves as proof of closure and can be useful for your records. Finally, monitor statements from your old account, if accessible, and your new accounts for a period to confirm all transitions are complete and no unexpected activity occurs.