Does Closing a Savings Account Affect Your Credit Score?

Many people wonder how closing a savings account might influence their financial standing, particularly their credit score. A savings account serves as a deposit account for holding funds, while a credit score acts as a numerical representation of an individual’s creditworthiness. Understanding their distinct nature addresses the common question about their interplay.

Understanding Credit Scores

Credit scores, such as FICO and VantageScore, serve as predictors of a consumer’s ability to manage debt responsibly. These scores are generated from information compiled in credit reports, which are maintained by the three major credit bureaus: Equifax, Experian, and TransUnion. The calculation of a credit score involves several factors, each carrying a different weight in the overall assessment.

Payment history is the most influential component, accounting for approximately 35% of a FICO Score. The amounts owed, or credit utilization, which is the percentage of available credit being used, accounts for about 30% of the score. Maintaining low balances relative to credit limits can positively impact this factor. The length of credit history, including the age of accounts, contributes around 15% to the score, as a longer history is viewed favorably.

The mix of different types of credit accounts, such as credit cards, installment loans, and mortgages, makes up about 10% of the score. New credit, which includes recent applications for credit and newly opened accounts, accounts for the remaining 10% of the score. Opening multiple new accounts in a short period can temporarily lower a score due to hard inquiries on a credit report.

Savings Accounts and Credit Reporting

Savings accounts, along with checking accounts, are considered deposit accounts, different from credit accounts. They involve an individual’s own money being held by a financial institution, rather than money borrowed from that institution. This distinction is important because credit scores are designed to evaluate how well a consumer manages borrowed funds, not their personal savings.

Financial institutions do not report deposit account activity to the major credit bureaus. This means that actions like depositing funds, withdrawing money, or closing a savings account do not appear on a credit report. Consequently, these actions have no direct impact on credit scores. The absence of borrowing and repayment obligations associated with savings accounts means they fall outside the scope of credit scoring models.

Financial Actions That Influence Your Credit

Many financial actions directly impact credit scores. Opening or closing credit cards, for instance, can affect credit utilization and the length of credit history. Similarly, taking out loans, such as mortgages, auto loans, or personal loans, and consistently making payments on these accounts, directly contributes to payment history. Hard inquiries, which occur when applying for new credit, can also temporarily reduce a score.

Conversely, certain financial actions do not directly influence credit scores. Closing a checking account, for example, does not affect credit unless an unpaid negative balance is sent to collections, which then becomes a reported debt. Opening a debit card, which draws from a deposit account, also has no direct credit score impact. While a savings account does not directly affect credit scores, maintaining an emergency fund within a savings account can indirectly support credit health by providing funds to cover unexpected expenses, helping individuals avoid missing credit payments.