Does Closing a Bank Account Hurt Your Credit?

As a credit expert and a former NFCC-certified credit counselor, I know firsthand that many people are confused about what goes into their credit scores.

So, I want to break it down to make it easier to understand. As a rule of thumb, if it’s debt-related, it will likely have an impact on your credit. If it’s not debt, it won’t.

Closing a bank account will not affect your credit score, as long as your account was not overdrawn or you have unpaid fees associated with the account. If you, for example, you close your checking account because you want to move your money to a new bank – and you don’t owe the bank any outstanding fees – it won’t have any impact on your credit at all.

However, if you close your bank account and fail to pay a negative balance or remaining bank fees, that can turn into debt and possibly impact your credit scores.

The Link Between Bank Accounts and Credit Reports

Your credit reports are documents that show your history of managing debt, mainly your use of credit cards and loans.

The three major credit reporting agencies – Experian, Equifax, and TransUnion – gather information on when you pay debt and how much of your debt you pay each month. That information helps the reporting agencies give you a credit score (between 350 and 800, with 800 the highest) that reflects the likelihood you will repay your debts.

Since your bank accounts are not debt, they don’t directly impact your credit reports or scores in any way because they typically are not reported to the credit agencies. The same is true for non-debt accounts like utility bills, rent payments, and other bills.

However, there are some scenarios where a non-debt account, including a bank account, can turn into debt and damage your credit. Here’s how that can happen when you close a bank account:

1. Unpaid balances or fees: You owe money to the bank when your account is closed. For example, you have a negative balance caused by an overdraft or bounced check.
2. Charge-off: The bank charges off (or sells) the bill to a debt collector after making unsuccessful attempts to collect the money from you.
3. Credit damage: The collection account appears on your credit reports and causes your credit scores to drop.

If this happens to you, you can review your credit reports, and look at the “account information” or “collections” section, to see details about the debt.

When Closing a Bank Account Might Indirectly Affect Credit

Closing a bank account can be a bit of a financial ordeal. For example, when you close an account, you have to make sure your automatic payments and deposits are no longer directed to the account.

If you fail to take the necessary steps, you can, unfortunately, end up with debt that damages your credit reports.

Negative Balances or Overdrafts

When you close a bank account, these are some of the ways you can end up with a bill that goes to collections and hurts your credit:

• Bank fees: Your account is closed by either you or the bank, but you still owe money to the bank.
• Negative balance: You have a negative balance when your bank account is closed.
• Autopay mistakes: You failed to cancel an automatic payment for a bill, and that payment went through after you closed the account. As a result, you could end up with a new bank bill and/or fees, and the bank may even reopen the account without your knowledge. Alternatively, the transaction could be declined. This causes you to end up with an overdue bill that turns into debt.

If you find yourself facing any of these problems with a closed bank account, I recommend trying to pay the bank before the bill turns into collection debt and damages your credit.

Linked Accounts (e.g., Overdraft Lines of Credit)

Linked bank accounts can also cause problems when you close your bank account.

For example, let’s say you linked your savings account to your checking account in order to prevent overdrafts from your checking. If you close your savings account, you may not have the backup funds in the checking account necessary to prevent an overdraft.

As a result, you could end up with a fee for the transaction that turns into debt.

What Closing a Credit Account vs. Bank Account Means for Credit

When you close a credit account (such as credit card or loan), it will have a direct impact on your credit scores. You likely will see your credit scores drop, especially if the account was a credit card.

That’s because your credit utilization ratio, or the percentage of your available credit limit that you’re using, is a big part (30%) of your credit scores. If you close a credit card, you can lose some of your available credit and increase your credit utilization ratio.

On top of that, closing a credit account can impair your ability to improve your credit scores in the future. Here’s how:

• Fewer on-time payments: Making on-time debt payments is the best way to improve your credit scores. When you have fewer open accounts, you have fewer opportunities to add on-time payments to your credit reports.
• Shorter length of history: The longer your history with open debt accounts, the better. When you close a credit card, you lose the opportunity to increase your length of history with the account.

How to Properly Close a Bank Account

Closing a bank account is not a simple process, especially if you want to avoid incurring unexpected fees and debt.

The process for closing a bank account the right way depends, in part, on the bank. With that said, here’s what you can generally expect the process to look like (plus some personal tips for protecting your money as you close your account):

1. If you want to redirect your deposits and bill payments elsewhere, make sure you have another bank account open first.
2. Review at least three months’ worth of your bank statements and make a list of all the deposits and bills you need to redirect to another account. This includes:
   • Income deposits
   • Loans and credit card payments
   • Utilities
   • Rent
   • Memberships and subscriptions
   • Insurance premiums
   • Pending checks
   • Transfers from digital wallets
3. Once your first paycheck is deposited to the new account, make arrangements for your bills to be paid out of that account.
4. Look into your bank’s specific process for closing the old account. If the details are not available online, check your account agreement.
5. Leave a cushion of money in the old account for at least 30 days to cover any unexpected bills or fees. Monitor the account and make sure no unexpected transactions are taking place.
6. Pay all pending fees and negative balances on the old account, and transfer/withdraw remaining funds out of the account.
7. Complete the required paperwork to close the old account. This may include a notarized document that has to be submitted in person.
8. Request written confirmation that the account is closed.

What Happens to Your Credit if a Bank Closes Your Account?

In some cases, the bank can close your checking or savings account without your permission. For example, they might do this if you repeatedly overdraft on the account, you have a habit of writing bad checks or simply because you haven’t used the account for several years.

As I mentioned above, having your account closed does not have a direct impact on your credit scores. However, if you owe money to the bank after the account is closed, and the bank sends your bill to collections, your credit scores are likely to take a big hit.

Another negative outcome of having the bank close your account can be damage to your ChexSystems reports or your Early Warning Systems (EWS) report.

Both of these reports show your bank account history, and if they have negative information in them, banks might deny your applications for new accounts in the future.

How to Monitor Your Credit Post-Closure

Even if you close your bank account the right way, there’s still a chance you could end up with an unexpected bank fee or an account charge that goes to collections.

For that reason (and for many others), it’s a good idea to keep an eye on your credit reports at least quarterly. The only way I recommend monitoring your credit reports is to pull them from AnnualCreditReport.com.

This website is free to use and it’s the only federally-backed source that gives you access to your full credit reports from all three credit bureaus.

If you need help understanding what’s in your credit reports, I recommend setting up a free appointment with one of InCharge’s NFCC-certified credit counselors.

Alternatives to Closing a Bank Account

Closing a bank account requires some time and effort, so it’s not a move to be taken lightly. If you’d rather not go through the trouble of closing a perfectly good account, you might consider one of the following alternatives:

• Open up a second bank account that you use for a separate purpose, such as emergency savings or day-to-day checking.
• Keep the account open to receive your paycheck deposit, but transfer the funds elsewhere upon receipt.
• Move all of your money and transactions to another account at the same bank, without closing the old account.

Whatever you decide to do, make sure you keep things like minimum balance requirements and monthly maintenance fees in mind.

If the requirements or fees on a bank account are not manageable for you, or the interest rate is low, it’s probably best to close the account.

Is Closing My Bank Account Going to Affect My Credit Score?

In summary, closing a bank account does not hurt your credit score at all. However, making missteps while closing a bank account can result in damage to your credit scores.

If you’re too hasty with the process, you could end up owing fees or an unpaid balance to the bank that becomes debt and shows up on your credit reports.

To avoid credit trouble, make sure to follow the steps above to close your bank account the right way and protect your credit.

FAQ Section About Closing Bank Accounts and Credit Scores

Can closing a joint bank account affect my credit?

As with individual bank accounts, closing a joint bank account will only affect your credit if you have an overdue bill on the account and that bill turns into collections debt.

Will my closed account appear on my credit report?

Closed bank accounts do not appear on your credit reports. However, if you owe money to the bank after you close the account, and that bill is sent to a debt collector, the collection account can appear on your credit reports.

How long do collections stay on a credit report?

Collections stay on your credit reports for seven years from when you first failed to pay the bill.

For example, if you had an overdraft fee that was due to the bank in January 2020, and that fee is now a collection debt, the collection account will stay on your credit reports until January of 2027, even if you pay it off sooner.

With that said, the negative impact on your credit scores will lessen as the collection account gets older.