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Closing a bank account won't directly affect your credit. It could, however, cause you difficulties and affect your credit score if it's been closed with a negative balance. Here's what to know about bank account closures and your credit score.
Does Bank Account Information Show Up on a Credit Report?
Banks and credit unions don't report your bank account information to the credit reporting agencies (Experian, TransUnion and Equifax), so it's not listed on your credit report. Account closures are also absent from your credit report, regardless of whether you or the financial institution closed the account.
Your credit score is based on the information found on your credit reports, and reflects how you manage your debt payments, regardless of what assets you have available. As such, there's no direct link between your checking, savings or money market accounts and your credit scores.
How Closing a Bank Account Can Affect Credit
While the actual closure of a bank account won't impact your credit, it's possible for it to indirectly impact your credit score if the account had a negative balance when it was closed.
In this case, if you don't pay off the debt you owe in a timely manner, the bank or credit union could send it to a collection agency. The agency may choose to report the collection account to the credit bureaus, which can have a significant negative impact on your credit score.
What's more, the collection account will remain on your credit report for seven years from the date of the original delinquency, whether or not you pay it off.
In addition to potential harm to your credit score, an overdrafted bank account that's been closed may also get reported to ChexSystems, which manages your banking report—this is similar to a credit report but only lists information about your current and past banking activities.
Whether you or the financial institution closed the account, leaving it with a negative balance could make it difficult for you to get approved for another traditional bank account in the future. If this happens, you may need to opt for second-chance bank accounts or prepaid debit cards.
How to Safely Close Your Bank Account
Before you close a bank account, contact the bank or credit union to ensure you don't have a negative balance. Also consider any outstanding checks or pending transactions that could bring the balance negative or hit the account after you've closed it.
If you're moving your banking to a different financial institution, one way to do this is to switch your deposits and transactions to the new account but leave some money in the old bank account for a week or two (or longer). Then, once you've confirmed there are no surprise transactions, transfer your funds to the new account and close it.
If the bank or credit union notifies you that your closed account has a negative balance, make it a priority to take care of it as quickly as possible.
Monitoring Your Credit Is Important to Your Financial Health
While closing a bank account won't directly impact your credit, monitoring your credit regularly is essential to helping you develop and maintain good financial health. Checking your credit score and reports will give you an idea of how well you're managing your debts, and also give you some clues on how you can improve.
As you work to build a good credit history, it'll make it easier to qualify for inexpensive credit, which, in turn, will help you save money and keep your bank account balances out of the red.