{"id":9555,"date":"2021-04-29T07:00:18","date_gmt":"2021-04-29T13:00:18","guid":{"rendered":"https:\/\/www.lexingtonlaw.com\/blog\/?p=9555"},"modified":"2024-05-06T14:10:14","modified_gmt":"2024-05-06T20:10:14","slug":"will-closing-my-bank-account-affect-my-credit","status":"publish","type":"post","link":"https:\/\/www.lexingtonlaw.com\/blog\/credit-101\/will-closing-my-bank-account-affect-my-credit.html","title":{"rendered":"Does closing a bank account affect credit?"},"content":{"rendered":"\n
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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law\u2019s editorial disclosure for more information.<\/a><\/em><\/em><\/p>\n\n\n\n

Let\u2019s say you\u2019re ready to close your bank account. Maybe you\u2019re done with the high monthly charges, or the bank hasn\u2019t treated you well or you\u2019ve found a better bank. Whatever the reason is, you should stop and ask yourself, is it bad to close a bank account? After all, you don\u2019t want to impact your credit score<\/a> unknowingly.<\/p>\n\n\n\n

The answer is yes, closing a bank account can indirectly impact your credit score. While banks don\u2019t report consumer bank account information to the credit bureaus,<\/a> they can report a checking account that is not in good standing.<\/p>\n\n\n\n

That\u2019s why it\u2019s essential you learn what the potential consequences are and what you should consider before closing your bank account.<\/p>\n\n\n\n

What Happens When You Close a Bank Account?<\/h2>\n\n\n\n

Before you consider closing your bank account, make sure you have a new one set up elsewhere. It\u2019s essential you have at least one savings and one checking account.<\/p>\n\n\n\n

Next, change your direct deposit payment details (if this is how you get paid) to your new bank account. At the same time, you\u2019ll want to change the banking information for any pre-authorized debits, such as car insurance, rent or mortgage payments.<\/p>\n\n\n\n

Make sure you stop writing checks for your old checking account. You\u2019ll also want to track the checks you\u2019ve written recently and make sure they\u2019ve all cleared.<\/p>\n\n\n\n

Give yourself a couple of weeks to monitor your old and new accounts. You\u2019re looking to make sure your old account no longer has any activity and your new account is problem-free.<\/p>\n\n\n\n

When you\u2019re ready, you can call or visit your financial institution to close your account. Ask if there are any fees associated with closing the account<\/a> and approximately how long it will take. If there\u2019s any money left in the account, withdraw it or transfer it to your new account.<\/p>\n\n\n\n

Check back in and make sure you cannot access the account after it\u2019s been closed to verify the process is complete.<\/p>\n\n\n\n

Closing a Checking Account<\/h3>\n\n\n\n

So, does closing a bank account hurt your credit? It\u2019s important to understand that if you close a checking account with a negative balance still outstanding, this data will be reported to ChexSystems. (We\u2019ll discuss ChexSystems in more detail below.)<\/p>\n\n\n\n

Additionally, if the balance remains outstanding for an extended period of time, banks can send your account to a collection agency. And a collection agency will likely report to a credit bureau, which could impact your credit score<\/a>.<\/p>\n\n\n\n

Closing a Savings Account<\/h3>\n\n\n\n

Like a checking account, your savings account can incur various fees that cause it to have a negative balance. You could have insufficient fund fees, a wire-transfer fee, ATM fees or charges for not maintaining a minimum balance.<\/p>\n\n\n\n

Ensure your savings account doesn\u2019t have any outstanding fees before you close it. If there will be a fee for closing the account, pay it up front so it doesn\u2019t come out of your closed savings account.<\/p>\n\n\n\n

When Closing a Bank Account Affects Your Credit Score<\/h2>\n\n\n\n

The only time closing a bank account affects your credit score is if it has a negative balance. If you take too long to pay this balance to the bank, the financial institution can send the debt to a collection agency. A collection agency collects debts on behalf of third parties. And, in their debt collection process, a collection agency will usually report delinquencies to credit bureaus. This unpaid debt then becomes a part of your credit score,<\/a> ultimately lowering it.<\/p>\n\n\n\n

Overdraft Protection<\/h3>\n\n\n\n

Another critical factor to consider is how your checking account\u2019s overdraft protection<\/a> can impact your credit report.<\/p>\n\n\n\n

Most banks encourage their users to sign up for overdraft protection because it\u2019s like a \u201csafety net\u201d for forgotten bills or payments. When the bank applies overdraft protection to your account, it agrees to cover your overdraft based on the limits, conditions and fees spelled out in your agreement with them. This is especially useful for surprise charges.<\/p>\n\n\n\n

However, what most consumers don\u2019t know is that overdraft protection is considered a line of credit. So, when you add overdraft protection to your account, you may see a hard inquiry on your credit report. And a hard inquiry typically drops your credit score by a few points for a couple of months.<\/p>\n\n\n\n

If there are any issues with your overdraft protection down the line, it can directly impact your score. Some of these issues might be:<\/p>\n\n\n\n