Does Closing a Bank Account Hurt Your Credit?

Many individuals wonder if closing a bank account can negatively affect their credit score. While some financial activities directly influence credit, the relationship between a checking or savings account and a credit report is more nuanced. This article explores how bank accounts interact with your credit, both directly and indirectly.

Bank Accounts and Your Credit Report

Standard checking and savings accounts, often called deposit accounts, do not appear on personal credit reports. The three major consumer credit bureaus—Equifax, Experian, and TransUnion—collect information primarily related to credit obligations like loans and credit card accounts. These accounts reflect borrowing and repayment behavior, which is the basis for credit scoring.

Opening or closing a deposit account is not reported to these credit bureaus. Therefore, closing a bank account does not directly impact your credit score. Your credit report records borrowing history, not deposit history. A well-managed checking or savings account, even if closed, will not affect your credit score.

Indirect Credit Score Impacts

While closing a bank account does not directly affect your credit score, certain circumstances can lead to indirect negative impacts. For example, closing an account with an outstanding negative balance, such as an overdraft, can be problematic. If the bank cannot recover these funds, the unpaid balance may be sent to a collection agency. A collection account, unlike a standard bank account, is reported to credit bureaus and can remain on your credit report for up to seven years, significantly lowering your credit score.

Another issue arises if recurring automatic payments or direct debits are linked to the account. If you close the account without updating these arrangements, scheduled payments for bills, subscriptions, or loan obligations will fail. Missed payments, especially for credit accounts, are reported to credit bureaus and can result in late payment penalties and a drop in your credit score. Service providers may also report delinquent accounts to collection agencies, further damaging credit.

Less frequently, issues can arise if a refund or overpayment from a credit account was expected into the closed bank account. If these funds cannot be deposited, it might lead to complications with the credit issuer, potentially resulting in a perceived outstanding balance on your credit account or other administrative issues. It is important to ensure all financial flows are properly redirected before closing an account to avoid such complications.

Preparing to Close a Bank Account

To avoid any negative indirect impacts on your credit, carefully prepare before closing a bank account. Begin by transferring all funds from the account you intend to close into a new or existing account. This ensures that no money is left behind and simplifies the closure process. It is advisable to maintain a zero balance for a few days to a week to confirm all pending transactions have cleared.

Next, identify and update all direct deposits linked to the account. This includes paychecks from employers, government benefits, or any other regular incoming funds. Simultaneously, compile a comprehensive list of all automatic payments and recurring debits linked to the account. Reviewing past bank statements for the last six to twelve months can help identify all recurring transactions, including loan payments, utility bills, subscription services, and automatic transfers.

Once identified, update these automatic payments with the new account information well in advance of the closure. After confirming all funds have been transferred and all automatic transactions redirected, contact your bank to formally close the account. Request written confirmation from the bank that the account has been closed and that the balance is zero to maintain clear records.