Does Opening and Closing Bank Accounts Hurt?

Checking and savings accounts are essential for managing personal finances. Checking accounts facilitate daily transactions like paying bills and making purchases, with easy access via debit cards, checks, and online platforms. Savings accounts are for accumulating funds and earning interest, often for future goals like large purchases or emergencies. People open and close accounts for various reasons, including seeking better interest rates, relocating, or dissatisfaction with services. The decision to open or close an account carries different implications depending on the account type and management.

Impact on Credit Score

Opening or closing bank accounts does not directly impact a person’s credit score. These scores assess borrowing and repayment behavior, focusing on loans and credit cards. Checking or savings account activity, like deposits and withdrawals, is not reported to the three major credit bureaus (Experian, Equifax, and TransUnion) and does not appear on a credit report.

A credit score might be tangentially impacted when applying for an overdraft line of credit or a credit card linked to the bank account. These products involve credit, and their applications may trigger a hard inquiry, which can temporarily lower a score by a few points. This inquiry relates to the credit product, not the deposit account. Most financial institutions perform only a soft inquiry when a new checking account is opened, which does not affect the credit score.

Impact on Banking Relationships

A consumer’s banking relationship can be impacted by activity reported to specialized consumer reporting agencies such as ChexSystems, Early Warning Services (EWS), and TeleCheck. These agencies collect information about deposit account histories under the Fair Credit Reporting Act (FCRA), unlike credit bureaus that focus on debt repayment. Banks use these reports to assess risk for new customers.

Negative information reported to these agencies can include unpaid negative balances, excessive overdrafts, suspected fraudulent activity, or involuntary account closures initiated by the bank. Such negative marks can make it difficult to open new accounts at other financial institutions, as banks view these as risk indicators. Negative information typically remains on these reports for five to seven years.

Specific Situations Affecting Account Standing

Certain actions can lead to negative consequences, particularly if reported to ChexSystems or similar databases. Failing to cover overdrafts or leaving an unresolved negative balance before closure are common reasons for negative reporting. Financial institutions may charge fees for each overdraft; if unpaid, the account could be reported, indicating a history of mishandling.

Frequently opening and quickly closing accounts, especially with negative activity, might be flagged as suspicious. While not directly impacting a credit score, this behavior can be interpreted as a risk factor by deposit account reporting agencies. Activities like check kiting, repeated overdrafts, or other fraudulent behaviors are considered account abuse and can lead to involuntary account closure. These closures are negative marks and are reported to fraud prevention databases, hindering future banking opportunities.

Considerations for Account Management

Responsible account management minimizes negative impacts on banking relationships. Clear all outstanding balances and fees before closing an account. An unpaid negative balance sent to collections could indirectly affect a credit score. Obtain written confirmation from the bank when an account is closed to document that all obligations have been met.

Review account terms and conditions before opening or closing an account. Understanding fees, minimum balance requirements, and closure procedures prevents unexpected issues. Regularly monitor account activity through statements or online banking to identify errors or unauthorized transactions promptly. Set up alerts for unusual activity as an early warning for potential fraud. Consumers have the right to access their reports from agencies like ChexSystems, Early Warning Services, or TeleCheck annually to check for inaccuracies and dispute erroneous information.