Does Closing Your Bank Account Affect Your Credit?

Closing a bank account is a step you will probably take at some point, whether it’s to simplify your finances, switch to a bank with better rates, or simply escape from the grips of your bank’s terrible hold music. Whatever the reasons, a nagging thought often lingers: Does closing your bank account affect your credit? It’s a valid concern, given how closely your financial actions are tied to your credit health. Thankfully, this post explores the question and spills the beans on whether closing the door on your bank account could inadvertently lock you out of good credit standing.

While closing a bank account doesn’t affect your credit score, building up your credit is usually a good idea. Consider a  Credit Builder Loan, like those offered by MoneyLion’s WOW membership, which allows you to borrow up to $1,000 without a hard credit inquiry.

Does my bank account show up on a credit report?

Your credit report details your debt history, including how much you borrow, your credit lines, and any missed payments, but what’s not there is your bank account information. 

Banks and credit unions don’t report banking activity to the major credit reporting agencies. Therefore, your deposits, purchases, and even overdrafts aren’t featured in your credit report or score. 

However, that doesn’t mean zero accountability for your financial actions.  

What is ChexSystems?

ChexSystems is a consumer reporting agency that helps banks and credit unions identify problematic account holders. Financial institutions use ChexSystems to flag customers who mismanage or abuse their bank accounts. Common reasons to end up on a bank’s bad side include the following:

• Frequently opening and closing accounts
• A history of multiple overdrafts
• Abusing access to ATMs
• Using an account to commit or participate in fraud
• Frequently losing your debit cards

Once a bank reports any negative activity to ChexSystems, opening an account for around five years may be difficult. If you have more than one negative report against you, you may have to sign up for a second-chance account to access banking services. However, this information isn’t included in your credit report. 

How does closing a bank account affect your credit?

Banks don’t report to the credit bureaus, but that doesn’t mean your banking history can’t still appear. 

Generally, the only way that closing a bank account impacts your credit is when you have a negative balance. If you don’t pay off your overdrawn account, the bank may send your debt to a collection agency. In turn, the agency may report your account to the credit bureaus, which can stay on your credit report for up to seven years. 

Additionally, closing an overdraft account may negatively mark your ChexSystems report, making it difficult to open a new account. 

How to close a checking account without hurting your credit

Closing your bank account without impacting your credit score is easy. Here’s how.  

Outstanding negative balance

Closing an account with a negative balance due to an overdraft may result in being sent to collections. As such, the first thing you should do before closing your account is pay off your debt. If you can’t afford the payment upfront, the bank may be willing to work out a payment schedule.  

Fees

You may also have to pay a fee to close your bank account. If that’s the case, you may have the option to pay now or leave enough money in your account to cover any charges.  

Limit accounts

Banks often report customers who open and close too many accounts too quickly to ChexSystems. Instead, only open the number of accounts you need. 

Overdraft protection

Many banks encourage customers to sign up for overdraft protection to protect against overdrawing funds. While the service can be helpful, it’s technically considered a line of credit. As such, applying for overdraft protection can temporarily lower your credit score.  

What to do after closing a bank account

Closing a bank account is generally a quick, painless process. But after you close your bank account, covering all your bases is wise.  

Change direct deposits

First, you’ll want to switch over any direct deposits to your new bank account. That includes paychecks, child support payments, and government-issued funds like Social Security.  

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Change auto payments

Next, you’ll want to change up your auto-payment information. The last thing you want is a late rent or credit card payment showing up on your credit report!   

Stop writing checks

If you still use checks, you should wait until any issued checks have cleared your account before closing. Then, get new checks for your new account to ensure clear payments.  

Transfer money to your new bank account

Once all pending transactions have cleared in your old account, transfer the remaining balance to your new account. You can do this through an online transfer, a written check, or a cash withdrawal and deposit.

Close and monitor your closed account

Even after you close your bank account, you should keep an eye on it for a week or two to ensure no transactions occur.  

Other options besides closing your bank account

If you hardly ever use your bank account but want to prevent it from becoming inactive, consider the following options:

• Make regular deposits: Even small deposits can help keep your account active and prevent inactivity fees. You can set up automatic transfers from another account to ensure regular deposits.
• Automate payments: To maintain account activity, automate bill payments, loan repayments, or transfers to savings accounts. This approach helps you stay on top of your financial obligations and keeps your account active.
• Use your debit card: Regularly use your debit card for purchases or withdrawals to demonstrate account activity. Some banks may require a minimum spend amount to consider the transaction active, so check with your bank for specific requirements.
• Notify your bank: If you anticipate a period of inactivity, give your bank a heads-up and request that the account remain active. Some banks may offer solutions to keep the account active without transactions.

Account Closure and Your Credit Score

Closing a bank account usually won’t impact your credit score, but try to manage the process correctly to avoid potential pitfalls. By staying on top of your balances, keeping track of your transactions, and communicating with your bank, closing your account should be a smooth transition. And remember, keeping your financial house in order is always a good idea — it’ll help you keep your options open.

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