Does Closing a Bank Account Hurt Your Credit?

When considering closing a checking or savings account, you may wonder if closing a bank or credit union account can hurt your credit score. After all, a low credit score can make getting a home, car, or personal loan difficult and may cause future credit card applications to be rejected. In addition, a less-than-stellar credit score may make it harder to get lower interest rates on loans.

Generally speaking, the act of closing a checking or savings account by itself shouldn't affect your credit score. However, there may be instances in which doing so could hurt your credit.

Let’s dive into how closing a savings or checking account may affect your credit.

Does Closing a Bank Account Hurt Your Credit?

Closing a savings or checking account may not directly affect your credit score. According to the Consumer Financial Protection Bureau (CFPB), the three major credit reporting companies — Equifax^®, Experian^®, and TransUnion^® — typically don’t include information on these types of accounts when compiling credit reports.^[1]

However, a few conditions can cause an account closure to hurt your credit. Here are two of the most common scenarios:

If Your Bank Account Closed While Not in Good Standing

If you closed a checking or savings account with a negative balance — or if the bank or credit union itself closed the account due to maintaining a negative balance for too long — this may affect your credit score. 

That’s because the bank or credit union may enlist the help of a third-party debt collection agency to recoup the shortfall in your closed account. Typically, these collection agencies report unpaid debts to the credit monitoring companies. The number of points taken off your credit score depends on the amount of money owed. Although a debt of less than $100 may not impact your score much, a larger debt may shave 100 points or more off your report. Negative credit marks may last on your report for up to seven years.^[2]

In addition, there are several companies that compile reports that help banks and credit decide whether or not to offer an applicant a checking account. These companies include Chex Systems^® and Early Warning Services^®. As with the credit reporting companies, checking account reporting companies assign consumers scores based on the health of their checking accounts. 

An account closed with a negative balance may lead to a diminished checking account report score. In turn, this may make it more difficult to be approved for another account.

If a closed account leads to a poor checking account report, you may want to consider opening a second-chance checking account to rebuild your banking history.

If You Used the Closed Account to Pay Bills

Closing a savings or checking account could also hurt your credit score if you used the account to pay bills — particularly if you have automatic payments set up. You may miss payments if you forget to change the billing arrangement to reflect a new account. 

If you miss a credit card payment, the issuer may report the missed payment to the credit reporting companies. In addition, other types of companies may report the money you owe to a debt collection agency — again, potentially resulting in a lowered credit score.

If you write paper checks, your credit score may also take a hit if you close an account before a payee deposits a check. This will result in a bounced check, making it likely that your bank or credit union will send the debt to a collection agency. The collection agency may then report the incident to the credit reporting companies, thus leading to a potentially lower score. 

Also, make sure you open a new account and move any automatic payments before closing the old one.

How To Close a Checking or Savings Account Without Affecting Your Credit Score

It's possible to close a checking or savings account without damaging your credit score. Here's how to safely shut down an account without losing any points:

Step One: Make a List of Direct Deposits and Debits

Log into your bank or credit union's website or mobile app and review your transaction history for recurring direct debits, as well as deposits. Because some automatic payments may occur on a quarterly or even yearly basis, you may want to look back through several months' or even a year's worth of account history. Take note of any automatic transactions.

Step Two: Open a New Checking or Savings Account

It's important that you open a new account before closing the old one. This is a good time to shop around for an account with features that appeal to you. For instance, you may want to look for a savings account with a higher interest payout or a checking account with a convenient network of automated teller machines (ATMs), low fees, etc.

Step Three: Transfer Some — but Not All — of Your Money To Cover Pending Transactions

Once you've opened a new account, you can transfer money from the old account. If you're switching accounts at the same bank, this may be easily accomplished with a money transfer. However, if you want to switch to a different bank or credit union altogether, you may have several options, including a wire transfer, personal check, cashier's check, or automated clearing house (ACH) transfer.

It's important to leave some money in the older account for a while to cover pending transactions or simply in case there are any overlooked transfers in the works. In addition,  see if the checking or savings account charges a fee for falling below an account minimum. If so, you may want to keep an amount higher than the minimum to avoid fees on the old account.

Step Four: Update Your Payment Arrangements

Once your new account is open and has a sufficient balance, update the payment options for all of your direct debits and deposits to reflect your new account information.

If you receive a direct deposit from your work, contact your employer in advance to ensure their payroll staff have all necessary account information and paperwork before the next paycheck is issued. Also, keep in mind that payrolls may be submitted several days before actual payday, making it important to provide your new account information as early as possible.

Step Five: Close the Old Account

Once you know there are no pending transactions involving your old account, it's time to withdraw any remaining funds and close the account. Depending on your bank, you may be able to do this online, but some banks and credit unions require an in-person visit or a written notice to initiate an account closure. If you're unsure of how to close an account, contact the financial institution's customer service team to find out.

Whenever you close a checking or savings account, it's worth asking for written confirmation on the bank or credit union's letterhead attesting to the account's successful closing. This can help you avoid potential headaches later.

The Bottom Line: Does Closing a Checking or Savings Account Affect Your Credit Score?

As long as the account is in good standing without a negative balance, simply closing a checking or savings account should not affect your credit score.

However, it's important to make sure that you take the proper steps to close the old account and open a new one. By following the steps detailed in this article, you can avoid missed payments, unnecessary fees, and any negative marks on your credit report.

In the event that an account closure does lead to a lowered credit score, be sure to make this an isolated event.

Ensure that all of your bill payment settings have been updated to reflect your new account numbers to avoid any additional missed payments. Also, make sure that you remain in good standing with all of your loan and credit card accounts. 

And if your credit report takes a hit, take heart in the knowledge that a lowered credit score won't last forever. Negative marks will remain on your credit report for a maximum of seven years. In the meantime, you may improve your score by maintaining a low credit utilization ratio and paying down your credit card balances