Does Closing a Checking Account Hurt Credit?

Closing a checking account generally does not harm your credit score. Checking accounts are deposit accounts for managing your own funds, unlike credit accounts that involve borrowing money. Financial institutions do not typically report their activity or closure to major consumer credit bureaus.

Checking Accounts and Credit Accounts

Checking accounts serve as transactional hubs for your personal funds, enabling daily activities like depositing paychecks or making payments. These accounts manage money you already possess, rather than extending credit. In contrast, credit accounts, such as credit cards or loans, involve borrowing funds that you repay over time, often with interest.

Major credit bureaus like Equifax, Experian, and TransUnion track your borrowing and repayment behavior. They do not receive information about the use or closure of your checking or savings accounts because these are not forms of credit. However, specialized consumer reporting agencies, such as ChexSystems, do track banking history, including issues like overdrafts or unpaid fees, which can affect your ability to open future bank accounts.

How Credit Scores Are Determined

Credit scores are numerical summaries that lenders use to assess your creditworthiness and the likelihood of repaying borrowed money. These scores are calculated based on financial behaviors recorded in your credit reports. Your income or bank account balances do not directly influence these scores.

The most impactful factor is your payment history, emphasizing timely payments. Another significant component is credit utilization, the percentage of your available credit currently used. Keeping these balances low contributes positively to your score. The length of your credit history, including account age, also plays a role. New credit applications and the mix of different credit types also factor into the overall score.

Avoiding Indirect Credit Issues When Closing an Account

While closing a checking account does not directly impact your credit score, certain situations can indirectly lead to credit problems if not managed carefully. Unresolved overdrafts or unpaid fees are one such scenario. If you close an account with a negative balance or outstanding fees, the bank may send that debt to a collection agency. A collection account on your credit report can significantly lower your credit score and typically remains on your report for up to seven years. Therefore, resolve all outstanding debts and ensure the account balance is zero or positive before closure.

Another potential issue arises if you have automated payments linked to the account you are closing. Many consumers set up recurring payments for credit cards, loans, utility bills, or subscriptions directly from their checking accounts. If these automated payments are not properly updated to a new account before the old one is closed, they will fail. A missed payment reported to credit bureaus can have a substantial negative impact on your credit score.

To avoid these indirect credit issues, several preventative steps are recommended when closing a checking account:
Open and fund a new bank account before initiating the closure of the old one.
Update all direct deposits, such as paychecks, and all automated withdrawals, including bill payments, to the new account.
Confirm all pending checks or electronic transactions have cleared the old account to prevent insufficient funds issues or bounced payments.
Transfer any remaining funds from the old account once transactions have cleared and payments are rerouted.
Obtain written confirmation from the bank that the account has been successfully closed and destroy any associated debit cards or unused checks.
Monitor your credit report in the months following the closure to identify and address any unforeseen issues promptly.