Does Closing a Bank Account Affect Credit Score UK?

Closing a bank account in the UK often raises questions about its potential impact on one’s credit score. A credit score plays a significant role in accessing various financial products. Understanding the relationship between bank accounts and creditworthiness, along with correct closure procedures, can provide clarity.

Understanding the Link Between Bank Accounts and Credit Scores

Standard current and savings accounts in the UK are generally not considered “credit products” in the same way loans or credit cards are. Credit reference agencies (CRAs), such as Experian, Equifax, and TransUnion, do not typically track the specific balance or daily transactional activity of these accounts. However, these accounts can indirectly influence a credit profile through several factors.

Banks perform identity and address verification when an account is opened. This information is shared with CRAs, contributing to an individual’s financial footprint and demonstrating residential stability. Furthermore, being registered on the Electoral Roll, often verified during bank account applications, is a positive signal for lenders as it helps confirm identity and address, potentially boosting a credit score.

Overdrafts, however, are a direct form of credit linked to a current account, and their management is reported to CRAs. Lenders can see an individual’s overdraft limit, current balance, and usage history. Responsible use of an arranged overdraft, staying within agreed limits, and regular repayment can positively reflect on a credit file, while unarranged overdrafts or consistently exceeding limits can signal financial difficulty and negatively impact a score.

How Closing Different Account Types Affects Credit Scores

Closing a well-managed current account, one without outstanding debt, unarranged overdrafts, or missed payments, typically has a minimal direct negative impact on a credit score. The key factor in this scenario is ensuring a responsible closure process. If a current account is closed while overdrawn, and the debt remains unpaid, this could lead to the account being passed to debt collectors. Such adverse reports can remain on a credit report for up to six years, significantly damaging the credit score.

Closing a long-held current account might cause a temporary, slight dip in a credit score. This is because the length of an individual’s credit history, or the average age of their accounts, is a factor considered by lenders as it indicates financial stability over time. Despite this, the overall impact is generally not dramatic, especially if the individual maintains a strong credit history with other financial products.

In contrast, closing a savings account typically has virtually no direct impact on a credit score. Savings accounts are not credit products and generally do not involve credit checks or reporting to credit reference agencies. This remains true unless the savings account was linked to an overdraft or used to secure a debt, which is uncommon for standard savings products.

Managing Your Financial Profile When Closing Accounts

To ensure that closing a bank account does not negatively affect your credit score, several steps are important. First, it is crucial to clear any outstanding balances, especially any overdrafts, before initiating the account closure. Banks typically require an account to have a zero balance before it can be formally closed. If an overdraft is not repaid, it can lead to serious consequences for your credit file.

Next, ensure all direct debits and standing orders are successfully transferred to a new bank account. Missing payments due to an untransferred recurring payment can negatively impact a credit score. The Current Account Switch Service (CASS) in the UK offers a streamlined process that automatically moves these payments and closes the old account. If not using CASS, you must manually update each payment.

Updating contact information, particularly your address, with credit reference agencies and other financial providers is also essential. Consistent and accurate personal details across your financial profile help lenders verify your identity. You should also inform relevant parties, such as your employer or benefit providers, about your new bank details to prevent any disruption to incoming payments.

Finally, after closing an account, regularly monitor your credit report with the three main CRAs in the UK. This allows you to ensure all information is accurate and to identify any unexpected negative entries promptly. The closed account should appear on your report, marked as “closed.”