How Closing a Bank Account Can Affect Your Credit Score

While closing a bank account doesn't directly impact your credit score, a mismanaged closure can trigger a chain of events that ultimately causes significant damage to your credit history.

1. Outstanding Negative Balance: The process begins when you close an account with a negative balance, whether from an overdraft or unpaid bank fees. The bank will not simply forgive this amount.

2. Accumulating Fees: If the negative balance isn't settled, the bank may continue to levy fees, such as for overdrafts or account maintenance, causing the debt to grow over time.

3. Debt Sent to Collections: After a certain period of non-payment, the bank will typically charge off the debt and sell it to a collection agency to recover the funds.

4. Reporting to Credit Bureaus: This is the critical step. The collection agency reports the unpaid debt to the major credit bureaus—Experian, Equifax, and TransUnion—as a collection account.

5. Negative Credit Impact: A collection account on your credit report is a major derogatory mark that can significantly lower your credit score and remain on your report for up to seven years.

How Much Will Closing a Bank Account Affect Your Credit Score?

While closing a standard bank account doesn't directly impact your credit score, certain related circumstances can lead to negative consequences. Here are a few key factors to consider before you close your account.

• Negative Balance. Closing an account with an outstanding negative balance can be a costly mistake. The bank may send the debt to a collections agency, which will be reported to credit bureaus and harm your score.
• Automatic Payments. Be sure to update any automatic bill payments linked to the account you're closing. A missed payment on a loan or credit card because of this will negatively affect your credit history.
• Overdraft Protection. If your account is linked to a line of credit for overdraft protection, closing it could be tricky. This action might close the credit line, which can affect your credit utilization ratio and overall score.

How You Can Avoid Closing a Bank Account Affecting Your Credit Score

Settle Any Negative Balances

Ensure your account has a zero or positive balance before closing. Outstanding fees or overdrafts can be sent to collections, which is then reported to credit bureaus. This action can significantly damage your credit score, so it's crucial to clear all debts first.

Redirect Automatic Payments and Deposits

Before closing your account, reroute all automatic payments and direct deposits to a new one. A missed payment on a loan or credit card because the account was closed will be reported as late, directly harming your credit history and lowering your score.

Review Linked Credit Products

If your bank account has an associated overdraft line of credit, closing the bank account will also close that credit line. This can increase your credit utilization ratio and lower the average age of your accounts, both of which can negatively affect your score.

Choose the Right Card to Closing A Bank Account

Improving your credit score is always possible, and doing so plays a crucial role in your overall financial health by unlocking better loan terms and credit card approvals. Consistent, positive financial behavior can lead to meaningful changes in as little as three to six months.

• Monitor your credit reports regularly. You can obtain free reports from the three major bureaus through AnnualCreditReport.com to identify and dispute inaccuracies or detect identity theft.
• Establish automatic bill payments. Since payment history is the most significant factor in your score, setting up automatic payments is a simple way to ensure you never miss a due date.
• Reduce your credit utilization ratio. Aim to keep your credit usage below 30% of your total available credit, as high utilization can negatively impact your score.
• Become an authorized user. Being added to a credit card account that has a strong payment history and low utilization can help boost your own credit profile.
• Diversify your credit mix. Lenders like to see that you can responsibly handle various types of credit, such as revolving credit from cards and installment loans like mortgages or auto loans.

The Bottom Line

Closing a bank account won't directly harm your credit score. However, if the account has a negative balance that goes to collections, it can damage your credit history.

Frequently Asked Questions

Does closing a bank account directly impact my credit score?

No, closing a standard checking or savings account does not directly affect your credit score, as this activity is not reported to the credit bureaus.

What if I close an account with a negative balance?

Closing an account with a negative balance can harm your credit. The bank may send the unpaid debt to a collection agency, which gets reported.

Can closing a bank account show up on my credit report?

Only if the account has a negative balance that goes to collections. Otherwise, standard bank account closures do not appear on your credit report.