Does Closing a Savings Account Hurt Your Credit?
Find out if closing your savings account impacts your credit. Understand the key differences between deposit accounts and credit reporting.
A savings account provides a secure place to store funds and often accrue interest. A common question arises regarding the impact of managing such accounts on one’s financial standing, particularly concerning credit. This article clarifies whether closing a savings account affects your credit score, explaining credit scores and the types of accounts that genuinely influence them.
Understanding Your Credit Score
A credit score is a numerical representation of an individual’s creditworthiness, primarily used by lenders to assess the risk of extending credit. This three-digit number, typically ranging from 300 to 850 for the FICO score, summarizes a person’s credit history. A higher score indicates a lower risk to lenders, potentially leading to better terms for loans and credit products.
The calculation of a credit score involves several key factors. Payment history is the most influential component, accounting for about 35% of the score, reflecting consistent and on-time payments. Amounts owed, or credit utilization, makes up around 30% of the score, considering total debt relative to available credit. Lower utilization is viewed more favorably.
The length of credit history, including the age of accounts, contributes approximately 15% to the score. A longer history of responsible credit management is a positive indicator. New credit, reflecting recent applications or new accounts, accounts for about 10% of the score, as numerous recent inquiries can suggest higher risk. Finally, the credit mix, or variety of credit types managed, makes up the remaining 10%, showing an individual’s ability to handle different forms of debt. These factors are all directly related to borrowing and debt management.
Why Savings Accounts Don’t Impact Credit
Closing a savings account does not negatively affect your credit score because savings accounts are fundamentally different from credit accounts. A savings account is a deposit account, holding money you own, rather than representing money you owe or have borrowed. It functions as a place to keep your assets, not a form of credit.
Credit bureaus, such as Equifax, Experian, and TransUnion, collect information related to borrowing and repayment behavior. They do not track the activity, balances, or the opening and closing of savings accounts. Since savings accounts do not involve borrowing or repayment obligations, there is no credit-related information for these bureaus to report. Therefore, actions taken with a savings account, including its closure, are not reflected on your credit report and have no direct bearing on your credit score.
Accounts That Influence Your Credit
Certain types of financial accounts appear on credit reports and actively influence credit scores, as they involve borrowing and repayment. Credit cards are a common example of revolving credit, allowing individuals to borrow up to a set limit, make payments, and borrow again. Managing credit card accounts responsibly, such as making timely payments and keeping utilization low, positively impacts a credit score. Conversely, late payments or high balances can decrease the score.
Installment loans, which involve borrowing a fixed amount repaid over a set period through regular, fixed payments, also affect credit. Examples include mortgages, auto loans, and student loans. Consistent, on-time payments on these loans demonstrate reliable repayment behavior, contributing favorably to credit history. Missed payments on any of these credit products are reported to credit bureaus and can significantly lower a credit score, as payment history is a major component of credit scoring models.