Finding a good bank account that balances features, customer service, and cost isn’t always easy. And when your needs change or your bank’s services deteriorate, it may be time to move on. But before you head for greener pastures, it’s important to know the answer to the question, “Does closing a bank account affect your credit?”
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 your banking activity to the major credit reporting agencies. Your deposits, purchases, and even overdrafts don’t feature in your credit report or your credit score.
However, that doesn’t mean there’s 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 has reported any negative activity to ChexSystems, you may find it difficult to open an account for around five years. 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.
Still, this information still 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 make an appearance.
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 overdrafted account may put a negative mark on your ChexSystems report. This can make it difficult to open a new account in the future.
How to close a checking account without hurting your credit
Fortunately, it’s pretty easy to close your bank account without impacting your credit score. Here’s how.
Outstanding negative balance
Closing an account with a negative balance as the result of something like an overdraft may result in you 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 actually need.
Overdraft protection
Many banks encourage customers to sign up for overdraft protection to protect against overdrawing funds. While the service can be useful, 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, it’s wise to cover all your bases.
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.
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’ll want to wait until any issued checks have cleared your account before closing. Then, you’ll need to get new checks for your new account to ensure your payments are cleared.
Monitor your closed account
Even after you close your bank account, you should keep an eye on it for a week or two to make sure no transactions take place.
Closing a bank account doesn’t usually affect credit
Closing a regular bank account won’t directly affect your credit unless you have a negative balance. Still, it’s not a good idea to switch too often, lest you find yourself on the ChexSystems naughty list. As such, before you find a new account, it’s a good idea to do your research and make sure that your new bank has all of the features that you need.
FAQ
What happens when you close a bank account?
When you close your bank account, the bank stops any future financial activity within the account. They’ll also return any money you have saved up, minus closing fees or overdue balances.
Does closing a bank account hurt your credit?
Closing a bank account doesn’t hurt your credit if you don’t have a negative balance.
Is it bad to close a bank account?
As long as you have a positive balance, closing your bank account isn’t bad. Just don’t do it too often – and when you do, be sure to pay off your fees and make sure your outstanding checks clear first.
