Ready to close a bank account but worried you could ding your credit score? Don't be.
By taking a few simple steps and practicing good banking habits, you can avoid having your credit affected by a bank account closure. Here's what you need to know.
Generally, closing a bank account doesn't affect your credit
The mere act of closing a bank account doesn't have a direct impact on your credit. The Consumer Financial Protection Bureau confirms that the three major credit bureaus — Experian, Equifax and TransUnion — don't typically include checking account history in their credit reports. But your credit could suffer if you're not careful when you close an account.
Your credit score could drop if your bank account isn't in good standing
Some blemishes in your bank account history could affect your credit. For example, if you close an account while the balance is negative or a bank closes your account because it's overdrawn for an extended period, the negative balance could go to a third-party collection agency. That could lead to your credit report being marred.
"If the bank sends this outstanding debt to a collection agency, it could be reported to any of the three credit bureaus," Marguerita Cheng, certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, said in an email. "Collections can trigger a drop in your credit score."
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How to close your bank account so your credit isn't affected
You'll need to make sure that your account is in good standing and remains that way even as you close it. Here are the steps to close your bank account properly:
1. Make a list of recurring deposits and withdrawals. Note the bills and payments paid by direct debit from your account periodically. It's just as important to note any deposits you get, even if they're only occasional. You don't want your tax refund to go to a closed bank account, for example, said Miguel Gomez in an email. Gomez is a wealth advisor at Lauterbach Financial Advisors in El Paso, Texas, and host of the podcast "Dinero en Español."
2. Open your new account and move money and automatic transactions to it. "If you have automatic payments drawn from the account you're closing and you don't update them before closing the account, that can affect your credit due to missed payments," Gomez said.
3. Settle any balances on your old account. You should leave some cash in your old account to cover any pending transactions you might have overlooked, Cheng said. You can also contact your bank to ask if you have any outstanding balances. If you opened an account to take advantage of a cash bonus, make sure your account has been open for the minimum time required to avoid an early closure penalty fee.
4. Close your old account and confirm its closure. Once you've ensured there are no pending transactions, you can close your account. You might be able to complete the closure online, but some financial institutions require that you fill out a mail-in form, visit a branch or call to close your account.
The bank may send you an email to confirm the account closure, or you can contact a representative by phone or in person to confirm the account has been closed and request confirmation in writing.
Closing an account doesn't hurt your credit, but there are steps you should take to ensure your credit stays unaffected when you do so. Ruth Sarreal is a content management specialist covering consumer banking topics at NerdWallet.
Closing a bank account typically won't hurt your credit. Your credit score is based on how you manage borrowed money, and your checking or savings accounts aren't debts. So bank account closures aren't reported to the three major credit bureaus: Experian, TransUnion and Equifax.
The mere act of closing a bank account won't hurt your credit. But it might if your account isn't in good standing. If your account balance is negative, this information will show up on your ChexSystems report. ChexSystems gathers data about consumers' banking activity and sells it to financial institutions.
Several banks charge an early account closure fee, usually between $5 and $50, if a customer closes their account within 90 to 180 days of opening it. Customers often choose to close their accounts early if they find better fees, higher annual percentage yields, or more convenient services at another bank.
As TransUnion and Experian note, a closed account that shows a positive history of payments is likely to help your credit score. Generally, a closed account with negative history can continue to hurt your credit score for seven years.
If you close a bank account but still have funds in the account, you should receive a check from the bank for the remaining funds. If your local bank branch closes, you still have access to your account and funds at other bank branches or online.
You don't need a reason to close a bank account. However, there are numerous reasons you might want to. Here are some of the more common reasons to move on from your current account: You're moving to a new city or state.
As you must already know, your Savings Account needs a minimum balance or else a penalty charge is levied on it. When your Savings Account is inactive, there is a high chance that you won't be able to maintain the minimum balance requirements.
Specifically, section 609 of the FCRA gives you the authority to request detailed information about items on your credit report. If the credit reporting agencies can't substantiate a claim on your credit report, they must remove it or correct it.
While an open account may increase your credit utilization ratio, a closed account will reduce your available credit. Credit history: Your length of credit history or credit age is a measure of how long you've had a particular account or loan.
You closed your credit card. Closing a credit card account, especially your oldest one, hurts your credit score because it lowers the overall credit limit available to you (remember you want a high limit) and it brings down the overall average age of your accounts.
Closing a credit card could change your debt to credit utilization ratio, which may impact credit scores. Closing a credit card account you've had for a long time may impact the length of your credit history. Paid-off credit cards that aren't used for a certain period of time may be closed by the lender.
Close old, inactive accounts – they can kill your application. If you're not using an account, it may be worth closing it. Leaving it open might be a fraud risk, and it could display out-of-date details. Having said that, when applying for a mortgage, longer, stable credit relationships are a positive.
You closed your credit card. Closing a credit card account, especially your oldest one, hurts your credit score because it lowers the overall credit limit available to you (remember you want a high limit) and it brings down the overall average age of your accounts.
Introduction: My name is Duane Harber, I am a modern, clever, handsome, fair, agreeable, inexpensive, beautiful person who loves writing and wants to share my knowledge and understanding with you.
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