Does Closing A Savings Account Affect Credit Score?

A Credit score is a significant aspect of a person’s financial life. It affects their ability to get approved for loans and credit cards, as well as the interest rates that will be charged on the loans. Of course, you have to be cautious not to perform an action that would lead to a decrease in your rating. A common question that people ask is whether they can close a savings account without it having any impact on their credit. Let us look at how savings accounts and credit scoring to get an answer to the question.

How Savings Accounts and Credit Scoring are Connected?

Defining what a credit and a savings account is first of importance. A savings account is a kind of deposit account in which the money you have placed at a given bank can be earning interest. Savings accounts, money market accounts, and certificates of deposit (CD) represent three main types of savings. With interest imposed on the loan, credit accounts let you get cash you will have to pay back eventually. Among the secured credit products are credit cards, auto loans, mortgages, and student loans.

Nothing more than records of your credit accounts, including loans and credit cards, credit reports, and scores. It does not include any other kind of deposit account or any approved savings account. The credit bureaus and banks keep these records separate. Therefore, whatever you do about a savings account—including opening or canceling the account or even managing it—does not show on your credit records.

The One Exception

It is also important to note that there is one small caveat. If you have overdraft protection where your savings account is connected to your checking account and overdrafts draw money from your savings, then the overdraft could be reported to the credit bureaus by your bank. The use of an overdraft means withdrawal of money in effect similar to a small loan and the payment history can affect credit scores in the same way.

However, as far as I can tell, there is no way for savings activity to show up on the credit report unless you link your checking and savings with overdraft protection. Neither does checking and debit activity affect your credit in any way, whether or not you carry high balances or accrue numerous overdraft fees. This is true because only balances on credit cards, which exceed the credit limit are taken into account when calculating the score.

Why It Is Possible to Close a Savings Account and Not Have It Impact Credit?

Since savings activity does not impact the credit reports to start with that implies that closing out a savings account will not reflect or have any effect on the credit score. Here are a few examples of savings account changes that have no credit impact.

• Sure, the action would be as follows: closing the first financial savings account that one has ever had in his or her life.
• Closing all of your savings accounts in a bank that you no longer want to be a patron with
• Combining various individual accounts into one newly created savings account for both partners

Not even closing a CD before it can reach its full maturity stage will be reported to the credit bureaus on condition it did not have credit at the opening. For example, some banks have CD-secured loans where the balance of the CD is used to secure a loan. Only in those instances can defaulting on the loan impact your credit, but early withdrawal still would not.

In most cases, however, CDs and savings accounts exist wholly independently of your credit data and credit history. This implies that operations such as opening, closing or even managing savings accounts do not in any way have any impact on this vital score in credit.

Other Ways to Build Credit Without Savings Accounts

Since savings accounts do not play any role in fortifying your credit report and credit score what kinds of accounts should one consider? Here are a few ways to actively build your score over time that do get reported to credit bureaus.

• Applying for a new credit card – As mentioned having a range of cards such as retail cards, airline cards, and bank cards among others will help build your profile. It is advisable not to carry forward statement balances and ensure full payment of outstanding balances by the end of the month.
• Get an installment loan – Car loans, student loans, and personal loans qualify provided that you make all monthly payments as agreed.
• Be an authorized user – Being added as an AU to another individual’s credit card, most preferably a spouse or a family member, means that one gets a credit history without incurring the credit card bills.
• Dispute and fix errors – When something is reported wrong on your credit reports, you prove that it is wrong, and it is fixed to be right so that you can earn back points that you lost.

The takeaway? If you need to increase your credit score, being added as an authorized user of credit cards or receiving and paying off installment loans can be useful since it shows that you manage credit well over time. Therefore, checking and savings accounts are not part of your credit reports or credit scores. Therefore, do not worry that closing savings, checking, CD, or money market accounts impacts that critical credit figure.

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