Home Credit report Does closing a bank account affect your credit?

Does closing a bank account affect your credit?


(NerdWallet) – Ready to close a bank account, but worried about losing your credit score? Do not be.

By taking a few simple steps and adopting good banking habits, you can prevent your credit from being affected by a bank account closure. Here’s what you need to know.

Generally, closing a bank account does not affect your credit

Simply closing a bank account has no direct impact on your credit. The Consumer Financial Protection Bureau confirms that the three major credit bureaus – Experian, Equifax and TransUnion – generally do not include checking account history on their credit reports. But your credit could suffer if you’re not careful when closing an account.

Your credit score could drop if your bank account is not in good standing

Certain imperfections 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 of time, the negative balance could go to a third-party collection agency. This could hurt your credit report.

“If the bank sends this unpaid debt to a collection agency, it could be reported to one of three credit bureaus,” said Marguerita Cheng, certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, in an email. “Collections can trigger a drop in your credit score.”

How to close your bank account so your credit isn’t affected

You will need to ensure that your account is in good standing and remains so even when you close it. Here are the steps to properly close your bank account:

1. Make a list of recurring deposits and withdrawals. Periodically record invoices and payments paid by direct debit from your account. It is equally important to note all the deposits you receive, even if they are only occasional. You don’t want your tax refund going to a closed bank account, for example, Miguel Gomez said in an email. Gomez is a wealth advisor at Lauterbach Financial Advisors in El Paso, Texas, and host of the “Dinero en Español” podcast.

2. Open your new account and transfer money and automatic transactions to it. “If you have automatic payments taken from the account you’re closing and you don’t update them before you close the account, it can affect your credit due to missed payments,” Gomez said.

3. Pay off any balance on your old account. You should leave money 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 have ensured that there are no pending transactions, you can close your account. You may be able to close online, but some financial institutions require you to complete a mail-in form, visit a branch, or call to close your account.

The bank may send you an email to confirm the account has been closed, or you may contact a representative by phone or in person to confirm that the account has been closed and request confirmation in writing.

Note that if your account earned interest or a cash bonus during the year, you will need to obtain the appropriate documents from the bank for your taxes.

Follow these steps when you close your bank account and you’ll avoid fees, missed bills, and credit issues.