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When closing a bank account, a common question people ask is whether it will negatively impact their credit scores. Fortunately, closing a savings or checking account that’s in good standing won’t hurt your credit in any way.
However, there are a few things to consider before closing your bank account to make sure it’s done the right way and doesn’t end up causing any credit-related problems.
How credit bureaus fit in
The 3 major credit bureaus
Credit bureaus Equifax, Experian and TransUnion maintain reports on how consumers manage borrowed money. As such, information in a person’s credit report may include balances and payment history on debts such as mortgages, personal loans and credit cards.
What’s not typically included in a credit report is bank account information, so closing an account in good standing won’t affect your credit.
Closing a bank account with a negative balance is a different story, however. If you close an account that’s been overdrawn and don’t resolve the negative balance (including paying any overdraft fees), the bank may send the debt to a collection agency. In turn, the agency can notify the three credit bureaus, which may result in a lower credit score and remain on your report for up to seven years.
ChexSystems
ChexSystems is a specialty reporting agency that operates under the Fair Credit Reporting Act. Financial institutions report consumer information to ChexSystems such as a record of bounced checks and unpaid negative balances. Therefore, closing a bank account that’s not in good standing can show up in one’s ChexSystems report.
Information stays on your ChexSystems report for five years, and it can be used by banks when deciding whether to approve bank account applications.
Closing a bank account in good standing won’t negatively affect one’s ChexSystems score.
How to close a bank account without hurting your credit
Having an unpaid negative balance on a closed bank account could ultimately result in reports to a collection agency and to the credit bureaus. If your plan is to close your existing bank account and open a new bank account elsewhere, ensure you’ll do so without hurting your credit by following some steps:
1. Open your new bank account before closing the old one. It may take some time to fund the new account or order checks, so it’s important to retain use of the old account in the meantime for things like online bill payment, check writing and sending money through services such as Zelle.
Otherwise, your credit could be hurt if you temporarily don’t have access to your methods of bill payment.
2. Fund the new account and reroute direct deposit there. Put money into the new account, whether you’re depositing cash at a branch or transferring funds electronically from the old account to the new one.
If your paycheck is set up to be directly deposited into your old bank account, provide your employer with your new bank account information and request the direct deposit be rerouted to the new account.
3. Update automated bill payments. Once you have adequate funds in the new account, update any automated bill payments to be deducted from this account. These may include your rent or mortgage, student loans, utilities, insurance premiums, gym memberships and other subscriptions.
Look through the transaction history of your old bank account to ensure you’re not forgetting any such automated payments, which could potentially result in a negative balance for the old account.
4. Close the old account. After you open the new bank account, it’s a good idea to wait at least a month or so before closing the old one. This gives you a chance to make sure your direct deposit is rerouted successfully and all automated bill payments have been transferred.
Bottom line
Closing a bank account that’s in good standing won’t hurt your credit score. If you have a negative bank balance, however, it’s important to resolve the balance before closing the account. Otherwise, your credit could suffer as a result.
Making sure your direct deposit and automatic bill payments are running smoothly in a new bank account before closing your old bank account can also help you avoid missed payments and potential credit problems.
