Does Closing Checking Account Affect Credit Score?

Is Closing a Checking Account Good or Bad for Credit Score?

Your checking account offers the ability to deposit money safely, withdraw cash, pay bills, and even shop for goods and services. A checking account is very handy, yet you might want to shut one for one reason or the other someday. This leads to the following question – does closing your checking account lower your credit score?

The short answer is usually no: closing a checking account does not typically damage your credit score if closed appropriately. Although account closures can have some advantages, mistakes can sometimes lead to negative consequences for your credit. This article will discuss the connection between checking accounts and credit scores and will give recommendations on how to close an account without harming your credit.

Are There Any Impacts of Checking Accounts on Credit Rating?

Oddly enough, there is very little correlation between checking accounts and credit scores. The credit scoring models such as the FICO do not consider the status of active checking accounts when arriving at your credit score. Unlike a credit card or a loan, checking accounts don’t let you borrow money, so managing your checking account won't affect your credit reports or scores. So long as you formally close your checking account, it has no adverse effect on your credit score whatsoever.

How Closing Accounts Could Hurt Credit?

In most cases, checking accounts and credit standing aren’t directly related, though improper handling of account closures can sometimes damage your credit. Here are two ways that improperly closed checking accounts could negatively impact credit scores.

Fees and Negative Balances

If closing the checking account causes you to overdraw the remaining balance or be unable to pay for the account fees, you end up with a negative balance. This debt may be taken to collections by the bank and this may negatively affect the credit score. They also cause negative reporting when an account is closed by the bank without the consent of the holder, usually as a result of poor handling of the account.

High Credit Utilization

Closing a checking account could decrease your total usable credit if the account is tied to an overdraft protection line of credit. This could raise your credit utilization ratio which encompasses 30 percent of the FICO credit score computation. This means that an increased use of the f-word correlates with a reduced score. However, utilization only measures open credit card accounts as opposed to closed credit accounts.

Guidelines for Closing Accounts Without Affecting Credit

Here some are tips to properly close checking accounts to avoid credit score impacts.

Pay off all balances: There are also negative balances or fees owed by the customer before account closure and they should be settled first. End the account at zero balance.

Avoid involuntary closures: Inform the bank before closing your account and ensure that you meet any other set minimum balance by the bank.

Check on linked services: If you are linked to another account, which can cover overdraft, it is recommended to change the settings before the closure. Either transfer or terminate other related services such as check cashing, overdraft protection, etc.

Open alternative accounts beforehand: Schedule a new checking account with another bank before totally closing the utilized bank account to sustain direct deposit and automatic payments.

Notify vendors making automatic withdrawals/deposits: Notify any merchants that you intend to close the checking account in case they are withdrawing or depositing any funds. Change payment to the right new account.

Conclusion

Unlike most personal accounts, closing checking accounts does not involve your credit reports and scores, but you need to close these accounts correctly. Settle balances, meet other requirements of the bank, transfer payment from the linked services, switch to the other accounts, and inform the vendors or the concern who withdraws or deposits money from the closing account. These guidelines must be adopted to ensure that there is no adverse effect when closing the checking account for credit history and FICO credit scores.

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