Will Closing a Bank Account Affect Your Credit?

You may be considering closing a bank account for any number of reasons – switching banks, consolidating accounts, or simply no longer needing it. But before you close that account, you might be wondering – will it affect my credit?

The short answer is, closing a bank account does not directly impact your credit scores. However, there are some indirect ways that closing an account improperly could hurt your credit In this article, we’ll explain how bank accounts relate to your credit, when closing an account could affect your scores, and how to close an account without damaging your credit

How Bank Accounts Relate to Your Credit

First, it’s important to understand the relationship between bank accounts and your credit reports and scores

Your credit reports, maintained by the three major credit bureaus, Experian, Equifax, and TransUnion, track your history managing credit – including credit cards, loans, mortgages, etc. Your credit scores are calculated based on the information in your credit reports.

Your bank account history and activity is not reported to the credit bureaus. Things like opening or closing accounts, deposits, balances, or overdrafts are not included in your reports.

So closing a bank account does not directly impact your credit. The act of shutting down an account itself will not show up or hurt your credit.

There are, however, some indirect ways that closing an account could hurt your scores, which is what we’ll talk about next.

When Closing a Bank Account Could Hurt Your Credit

While the account closure alone won’t hurt your credit, there are some scenarios in which closing an account could lead to credit report damage:

• The account has a negative balance – If you close an account that has a negative balance due to overdrafts and fees, the bank may send the debt to collections. That collection account could then be reported to the credit bureaus and lower your scores.

• You miss a loan payment – If automatic payments for a loan, mortgage, or credit card are withdrawn from the account, closing it without switching over the payments could result in a missed payment and credit damage.

• You have a relationship with the bank—Some banks may look favorably on credit card or loan applications from people who already have an account with them. Closing your accounts could remove this potential advantage.

The key is avoiding these pitfalls when you close your account. We’ll explain how next.

How to Close an Account Without Hurting Your Credit

Closing your account properly involves a few simple steps to protect your credit scores:

• First, open a new account. Get a new account ready at a different bank so you have a place to move your money and bills.

• Transfer automatic payments – Update any bills, subscriptions, or automatic loan payments to come out of your new account.

• Balances must be paid off in full before the account can be closed. This includes any overdrafts or negative balances.

• Confirm account closure – Request written confirmation from the bank that your account is fully closed with no other pending actions.

Following this checklist will allow you to seamlessly switch banks and accounts without any unintended hits to your credit.

If you do get a collection account on your credit report from a closed bank account, you can dispute the item with the credit bureaus to potentially get it removed. Paying off the negative balance won’t remove it from your credit reports, but some newer credit scoring models may ignore paid collections when calculating your scores.

Closing Joint Accounts

If you share a bank account with another person, such as a joint checking account with your spouse, extra steps should be taken when closing the account to avoid issues.

Both account holders should agree in writing to close the joint account. Any remaining funds should be withdrawn and distributed evenly, or as agreed upon. The other account holder should also be notified so automatic payments can be switched to a new account if needed.

With joint accounts, you’ll likely need to visit a branch or mail in a form to complete the closure, rather than closing it online. This ensures the bank receives authorization from both account holders.

Alternatives to Closing an Account

If you don’t want to fully close your bank account, here are some other options to consider:

• Switch to a free, basic checking account to avoid monthly fees
• Negotiate with the bank to waive or reduce fees on your existing account
• Keep the account open but minimize activity to avoid dormancy fees

This allows you to preserve your relationship with the bank and account history while reducing costs.

When Is Closing an Account a Good Idea?

While closing a bank account doesn’t directly hurt your credit, there are plenty of good reasons you may want to do so. Here are some of the most common:

• You’re moving, and your bank doesn’t have branches in your new area
• Your bank charges high monthly fees or overdraft fees
• You find a new bank offering better interest rates or lower fees
• You no longer need multiple accounts and want to consolidate
• You’re unhappy with the bank’s customer service

As long as you close properly by settling balances, transferring payments, and confirming account closure, you can switch banks or consolidate accounts without credit concerns.

The Bottom Line

While bank accounts aren’t directly connected to your credit, there are some roundabout ways that closing one improperly could ding your credit scores. As long as you close an account responsibly by paying balances, switching payments, and confirming closure, your credit shouldn’t be affected. But take precautions when closing joint accounts or ones with overdrafts.

Closing a bank account is a common occurrence when people move, switch banks, or consolidate finances. By understanding the relationship between bank accounts and your credit, you can take steps to ensure account closure doesn’t hurt your credit scores.