Does Closing a Checking Account Affect Credit Score?
You might worry that checking accounts function a lot like credit cards and you might hurt your credit score if you close one. That won’t happen when you close your bank account.
You see what I did there, right?
Does Closing a Checking Account Affect Credit Score?
It is a bit like the credit card situation in one way. As long as you closed the account and you closed it in good standing, you have nothing to worry about. Your checking account won’t hurt your credit when YOU close it.
So, when does closing a checking account affect credit score or cause a negative impact on your credit report? Keep reading to find out.
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If Your Bank Closed the Account
It will only hurt your credit score if your bank closed the account. This typically happens when you have allowed your account to go into arrears. That’s the fancy word for you let the balance go negative and it stayed that way. You might have bounced checks, or you might have had debits to the account that hit it and you stopped making deposits. Your bank may also close an account that you no longer use.
Under all of these scenarios, your bank might close your account. Under the first two, they definitely will close it. Under the latter, they will typically let it sit unused for a while. If you keep enough money in it to pay any monthly fees, they will typically keep it open although it is unused. If the account has no monthly fees to pay, they also may leave it open indefinitely.
You won’t hurt yourself if you close one bank account, but then go open a new account elsewhere, so long as the account you closed was in good standing. Unless you have a credit card with a bank, they don’t typically send information to a credit bureau. They might if you bounce checks. They definitely will if you force them to go to a collections agency to get you to pay them for checks written or debits you authorized that they paid.
The thing is that you can’t get away from that by switching from one bank to another. You have to re-pay the bank the money that they spent.
The Always Dangerous Overdraft Plan
Maybe you signed up for an overdraft plan but did not really understand what it meant. You still have to pay them the money for the check.
For those who haven’t heard of an overdraft plan, the term refers to a monthly fee program that many banks provide. For a small fee of $5.95 or $9.95 per month, the bank agrees to front you the money to pay an overdraft. It may even forgo a charge for doing this for one check per month.
These types of programs were created to help good people who simply might make a math mistake while balancing their check register or have an expected deposit occur late. It is not insurance, and it does not give you a license to write checks with money that you do not have.
Banks came up with these plans when they realized how many people simply did the check register math incorrectly. Rather than make the situation worse with massive fees, especially for those who already live paycheck to paycheck, banks came up with these programs.
Lots of people misunderstand what these programs do. Others get it but try to take advantage of them to see how much they can get away with overspending. Both of these items will get you in trouble with your bank. If they have too many checks come in that they have to process on this plan, even though you’re paying a monthly fee, they will discontinue your participation in the program. If you continue to bounce checks, they will close your account. In this case, the activity will get reported to the credit bureaus and it will hurt your credit score.
How to Safely Close Your Bank Account
Erase any thoughts like “Does closing a checking account affect credit score?” by closing your checking or savings account the right way. This straightforward process takes only a few steps.
Call your bank to check your balance. Ask if you have any outstanding checks.
If you have none and you already changed all automatic debits from that account to your new one, you can close it. Leave a little money in the account to cover at least your largest debt expense during a month, if you aren’t sure if the automatic debits you changed processed yet. This option also helps you if you might have forgotten about an automatic payment.
After waiting one month, you close the account. This lets you ensure that you close it in good standing. You can transition your automatic deposits to the new account before you close the old one.
If your old bank phones you after you close the account to inform you of a charge, quickly pay the bank any fees incurred, so you keep the account closed in good standing.
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