Ready to close a bank account but worried you could ding your credit score? Don't be.
By taking a few simple steps and practicing good banking habits, you can avoid having your credit affected by a bank account closure. Here's what you need to know.
Get a NerdWallet-exclusive bonus of up to $400 when you open an account and hit $5,000 in direct deposits within 25 days after your first one. That’s $100 more than SoFi’s normal $300 bonus! Select "Learn More" to get started. Expires 4/22/24. Terms apply.
Generally, closing a bank account doesn't affect your credit
The mere act of closing a bank account doesn't have a direct impact on your credit. The Consumer Financial Protection Bureau confirms that the three major credit bureaus — Experian, Equifax and TransUnion — don't typically include checking account history in their credit reports. But your credit could suffer if you're not careful when you close an account.
Your credit score could drop if your bank account isn't in good standing
Some blemishes in your bank account history could affect your credit. For example, if you close an account while the balance is negative or a bank closes your account because it's overdrawn for an extended period, the negative balance could go to a third-party collection agency. That could lead to your credit report being marred.
"If the bank sends this outstanding debt to a collection agency, it could be reported to any of the three credit bureaus," Marguerita Cheng, certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, said in an email. "Collections can trigger a drop in your credit score."
Track your credit score with the NerdWallet app
Track your budget, finances and credit - all in one place and all for free.
How to close your bank account so your credit isn't affected
You'll need to make sure that your account is in good standing and remains that way even as you close it. Here are the steps to close your bank account properly:
1. Make a list of recurring deposits and withdrawals. Note the bills and payments paid by direct debit from your account periodically. It's just as important to note any deposits you get, even if they're only occasional. You don't want your tax refund to go to a closed bank account, for example, said Miguel Gomez in an email. Gomez is a wealth advisor at Lauterbach Financial Advisors in El Paso, Texas, and host of the podcast "Dinero en Español."
2. Open your new account and move money and automatic transactions to it. "If you have automatic payments drawn from the account you're closing and you don't update them before closing the account, that can affect your credit due to missed payments," Gomez said.
3. Settle any balances on your old account. You should leave some cash in your old account to cover any pending transactions you might have overlooked, Cheng said. You can also contact your bank to ask if you have any outstanding balances. If you opened an account to take advantage of a cash bonus, make sure your account has been open for the minimum time required to avoid an early closure penalty fee.
4. Close your old account and confirm its closure. Once you've ensured there are no pending transactions, you can close your account. You might be able to complete the closure online, but some financial institutions require that you fill out a mail-in form, visit a branch or call to close your account.
The bank may send you an email to confirm the account closure, or you can contact a representative by phone or in person to confirm the account has been closed and request confirmation in writing.
Closing a bank account typically won't hurt your credit. Your credit score is based on how you manage borrowed money, and your checking or savings accounts aren't debts. So bank account closures aren't reported to the three major credit bureaus: Experian, TransUnion and Equifax.
The mere act of closing a bank account won't hurt your credit. But it might if your account isn't in good standing. If your account balance is negative, this information will show up on your ChexSystems report. ChexSystems gathers data about consumers' banking activity and sells it to financial institutions.
The bottom line. Having a closed account on your credit report isn't necessarily a bad thing. If the account shows on-time payments and was in good standing when it was closed, it could help your credit score.
1. Payment History: 35% Making debt payments on time every month benefits your credit scores more than any other single factor—and just one payment made 30 days late can do significant harm to your scores. An account sent to collections, a foreclosure or a bankruptcy can have even deeper, longer-lasting consequences.
Bank accounts are different from credit card accounts and aren't part of your credit report. Closing a bank account doesn't affect your credit score or history. Although financial institutions report account closures to ChexSystems, opting to close a bank account doesn't impact your ChexSystems report.
Several banks charge an early account closure fee, usually between $5 and $50, if a customer closes their account within 90 to 180 days of opening it. Customers often choose to close their accounts early if they find better fees, higher annual percentage yields, or more convenient services at another bank.
Closing a credit card could change your debt to credit utilization ratio, which may impact credit scores. Closing a credit card account you've had for a long time may impact the length of your credit history.
Most of the time, yes, but your bank or credit union may require you to settle your balance before allowing you to close an account that is overdrawn. If you want to close your account, you should call your bank or credit union or go in person and give them your account information.
Specifically, section 609 of the FCRA gives you the authority to request detailed information about items on your credit report. If the credit reporting agencies can't substantiate a claim on your credit report, they must remove it or correct it.
Any negative mark on your credit can impact your score and reduce your chances of qualifying for a mortgage. This is especially true if you have debts that are late (past due), charged off, or currently in collections. But the reporting of these derogatory accounts doesn't disqualify you from getting a mortgage.
Highlights: Most negative information generally stays on credit reports for 7 years. Bankruptcy stays on your Equifax credit report for 7 to 10 years, depending on the bankruptcy type. Closed accounts paid as agreed stay on your Equifax credit report for up to 10 years.
Various weighted factors mean that even with no credit, your credit score could still be low because the length of your credit history or credit mix, for example, could also be low.
Making late payments, even a single day late, can significantly affect your credit. This becomes especially true if you make a habit of paying late. Some lenders or credit card companies will charge you a fee for being a single day late and could cut you off from making further purchases on the account.
Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed.
You don't need a reason to close a bank account. However, there are numerous reasons you might want to. Here are some of the more common reasons to move on from your current account: You're moving to a new city or state.
Close old, inactive accounts – they can kill your application. If you're not using an account, it may be worth closing it. Leaving it open might be a fraud risk, and it could display out-of-date details. Having said that, when applying for a mortgage, longer, stable credit relationships are a positive.
If you have set up recurring debits to your checking account, closing the account won't automatically cancel them. This could lead to you owing the bank money, even if your account is closed. To avoid this situation, cancel or change all automatic debits before closing your checking account.
Beyond those minimums, banks will often keep records of closed accounts for 7-10 years after closure. This allows them to reference for any potential issues. After about 10 years, banks usually archive the records offline or to microfilm/digital storage.
Introduction: My name is Rev. Leonie Wyman, I am a colorful, tasty, splendid, fair, witty, gorgeous, splendid person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
