Does Closing a Checking Account Affect Your Credit Score?

Not directly, but watch out for these ways it could indirectly impact your credit

Fact checked by Brendan HarknessFact checked by Brendan Harkness

The act of closing a bank account doesn’t directly impact your credit. So, whether you’re switching to a new financial institution or just consolidating your finances, you won’t necessarily incur any negative credit score effects.

However, there are a few steps you should take before canceling your account to ensure you don’t indirectly hurt your credit. Here’s what to do.

Key Takeaways

• You can close your checking account with a bank or credit union at any time. 
• Traditional credit scores do not take checking accounts into consideration. 
• Closing a bank account won’t affect your credit score unless you miss payments to other accounts or have a negative balance.

When Closing a Checking Account Could Affect Your Credit

Typical credit scoring models, like FICO and VantageScore, don’t consider your bank accounts when determining your credit score. Bank accounts don’t appear on your credit reports from the three major credit bureaus.

“A checking account does not have any direct impact on a person’s credit score or credit file, because checking accounts are not considered lines of credit and do not involve borrowing money,” explained Michael Collins, a chartered financial analyst and founder of WinCap Financial. 

However, closing a checking account can indirectly hurt your credit score in some cases. For example: 

1. Your account was linked to a credit card or an outstanding loan: Many people use their checking account’s automatic payment settings to send payments for credit cards, student loans, and other forms of credit. But if you close your checking account before setting up autopay to come from another account, you might miss a payment. And a single missed payment can significantly affect your credit score (although creditors typically take at least 30 days to report a payment as late, so you have time to make it up).
2. The bank closed your account because of an unpaid negative balance: If a bank or credit union closes your account due to consistent overdrafts or an ongoing negative balance, it may pass that debt to a debt collection agency. If that occurs, the debt collector may submit the outstanding debt to the credit bureaus, which will affect your credit. Plus, this delinquency will remain on your credit reports for seven years. 

If a bank or credit union closes your account due to suspected fraudulent activity or because of an unpaid negative balance, the institution will report that information to checking account report companies like ChexSystems. Negative information on a ChexSystems report doesn’t affect your credit score, but can make it difficult to qualify for a new checking account.

If you’ve had past issues with negative balances and closed bank accounts, you may need to open a second-chance bank account. These basic accounts are designed for people who do not qualify for traditional checking or savings accounts and can help you repair your finances.

How to Close a Checking Account So Your Credit Isn’t Affected

If you’ve decided to close a checking account, follow these steps to protect your credit.

1. Review your account agreement: Before closing an account, review your deposit account agreement or fee schedule. The agreement will outline the requirements for closing an account, as well as any associated fees. For example, some banks charge a fee if you close your account within a few months of its opening date. 
2. Make sure your balance is positive: If your account is in the red, deposit enough to bring it back to $0 or positive.
3. Check your statements: Review your bank statements from the past three to six months and note any recurring payments, such as utility bills or payments on credit cards or loans. Create a list of any accounts linked to your checking account so you know what to update, such as your credit card company, mortgage lender, auto loan servicer, or student loan servicer.
4. Open a new checking account: Unless you already have another checking account, you’ll probably need to open a new one. Consider your options carefully—some banks offer bonuses for opening a new account.
5. Update your automatic payment information: Update your payment information with the accounts you found earlier. Add your new checking account details for future payments. While you’re at it, update your direct deposit information with your employer so your paycheck isn’t delayed, if applicable.
6. Submit your closure request: Some banks allow you to close an account online, while others require written notification or a phone call. Review your deposit account agreement to find out your bank’s requirements. 
7. Ask for a written confirmation: Request confirmation that the account has been closed via email or postal mail for your records. The confirmation can come in handy if there are disputes about the bank account’s closure date.

Factors That Affect Your Credit Score

There are several credit scoring models, but the FICO score is one of the most common. It takes the following factors into account, weighing some more heavily (giving them a bigger impact on your credit score). 

• Payment history (35%): The biggest factor affecting your credit score, your payment history shows creditors whether you’ve made your past payments on time. 
• Amounts owed (30%): This factor considers how much of your available credit you use, a measure known as credit utilization. If you use a larger percentage (by maxing out your credit cards, for example), your score can fall. Creditors worry you may be overextending yourself—and might have trouble paying back all of the debt.
• Length of credit history (15%): The longer you’ve had accounts open, on average, the better you’ll do in this category.
• Credit mix (10%): A mix of credit accounts is ideal, including revolving credit, loans, and mortgage debt. However, your credit mix has a smaller impact on your credit score than other factors—you don’t necessarily need one of each type of debt to have great credit. 
• New credit (10%): Taking on too much new credit at once can reduce your score. Creditors may see that and be concerned about your ability to afford your payments. 

You can build and improve your credit by making your payments on time, keeping your credit card balances low, and limiting new credit applications. 

Important

In 2018, FICO announced the launch of a new credit score, the UltraFICO Score, which was designed to be more comprehensive than other scoring models. It takes into account consumers’ checking, savings, or money market accounts, but it’s not yet widely available.

Frequently Asked Questions (FAQs)

Can I Close My Checking Account Whenever I Want?

As long as your account is in good standing and doesn’t have a negative balance, you can close your checking account with a credit union or bank at any time. However, some banks do charge early closure fees if your account has only been open for a short time, such as 90 days. 

Does Opening a New Checking Account Affect My Credit Score?

Checking accounts aren’t forms of debt, so they aren’t reported to the major credit bureaus, nor do they affect your credit score. Banks do report new accounts to checking account reporting companies like ChexSystems, but this information doesn’t impact your credit. 

Is My Credit Affected If My Bank Closes My Checking Account?

Whether the account closure affects your credit depends on the circumstances of the closure. If your account was closed for inactivity but didn’t have a negative balance, there will be no impact to your credit. But if your account was overdrawn and had a negative balance, the bank may send the debt to collections. If that happens, it can have a significant effect on your credit. 

Does Having Several Checking Accounts Help My Credit Score?

Checking accounts aren’t included in the calculations for traditional credit scores, so having several checking accounts doesn’t hurt or help your credit score. However, there may be some indirect benefits to certain accounts. 

“Features such as bill tracking and credit monitoring tools offered by some banks can also help individuals stay on top of their finances and make timely payments, which in turn, can positively impact their credit score,” said Collins.

What Are Some Alternatives to Closing an Inactive Checking Account?

If you don’t use an account often but don’t want to close it, you have some options. If you’re looking to cut down on monthly fees, you could ask your bank if you can switch to another account at the same institution with lower or no fees. 

You could set up a very small recurring transfer or payment to keep it active. Or, you can leave the bank account untouched until it’s needed. Just be aware that some banks will eventually consider your account dormant or inactive, meaning there has been no activity for a certain amount of time, and they may close it.  If that occurs, the account could be considered abandoned property, and you’d have to file a claim with your state’s unclaimed property office.

The Bottom Line

If you want to close a checking account to avoid costly fees or to switch to a bank that offers more convenience, know that closing the account won’t directly affect your credit. However, to ensure there is no damage to your credit score, be sure to update all of your automatic payment settings and properly notify the bank of your desire to close the account. 

If you’re looking for an account with no monthly fees and other perks, check out our picks for the best free checking accounts.

Read the original article on Investopedia.