Does It Hurt Credit to Close a Bank Account?

Closing a bank account generally does not directly harm your credit score, as these accounts differ fundamentally from credit products.

How Bank Accounts Relate to Credit Scores

Traditional bank accounts, such as checking and savings accounts, are not typically reported to the major consumer credit bureaus: Experian, Equifax, and TransUnion. This means opening or closing these deposit accounts does not directly appear on your credit report or influence credit score calculations. Credit scores, like those generated by FICO or VantageScore, primarily assess an individual’s management of borrowed money. Factors that influence credit scores include payment history on loans and credit cards, total debt owed, length of credit history, types of credit accounts held, and recent applications for new credit. Payment history carries the most significant weight, and the amount of debt owed also plays a large role.

Indirect Credit Impacts

While closing a bank account does not directly affect your credit score, specific scenarios can lead to indirect negative impacts. One concern arises if an account is closed with an outstanding negative balance, such as from overdrafts or unpaid fees. If this debt remains unpaid, the financial institution may send the account to a collection agency. A collection account, once reported to credit bureaus, can significantly harm a credit score and typically remains on a credit report for up to seven years.

Another indirect risk involves missed payments for credit-related obligations linked to the closed account. Automatic debits for credit card payments, loan installments, or other recurring bills are often set up directly from checking accounts. If these automatic payments are not updated to a new account before the old one is closed, payments will fail. Missed payments on credit products, especially those 30 days or more past due, are reported to credit bureaus and can severely damage a credit score.

Bank Accounts Versus Credit Accounts

It is important to distinguish between bank accounts and credit accounts because they function differently. Bank accounts, like checking and savings accounts, are deposit accounts where individuals store money. Credit accounts involve borrowing money, such as credit cards, mortgages, auto loans, and personal loans. Credit scores are primarily derived from activity and payment behavior associated with these credit accounts.

For deposit accounts, financial institutions often use specialized consumer reporting agencies like ChexSystems to track banking history. While a negative ChexSystems report can make it challenging to open new bank accounts, it generally does not affect one’s credit score directly, as it is separate from the credit bureau reporting system.

Steps Before Closing a Bank Account

Taking preparatory steps before closing a bank account is crucial to avoid potential indirect negative impacts. First, identify and update all automatic payments and direct deposits linked to the account. This includes payroll direct deposit, recurring bill payments for utilities or loans, and subscription services, ensuring they are rerouted to a new account. Allow sufficient time for these changes to take effect, often a full pay cycle or billing period, to prevent any missed payments.

Next, ensure the account has no outstanding checks, pending transactions, or remaining fees. Any transactions that have not yet cleared should be allowed to process fully to prevent overdrafts or other issues. Transfer all funds out of the account once all pending activity has settled. Finally, request and keep a written confirmation of the account closure from the financial institution for your records.