How Closing Your Bank Account Can Affect Your Credit Score

The relationship between closing a bank account and your credit score is more nuanced than most people realize. Many individuals worry that shutting down a checking or savings account will automatically damage their credit, but the reality is more complex. Understanding what actually happens when you close a bank account—and what could go wrong—is essential for maintaining financial health.

The Direct Impact: When Closing Accounts Won’t Hurt Your Credit

The straightforward answer is that closing a bank account in good standing typically won’t harm your credit score. Your credit rating is fundamentally based on how you manage borrowed money—your credit mix, payment history, and debt levels. Since checking and savings accounts represent your own money rather than borrowed funds, they don’t factor into your credit calculation at all.

The three major credit bureaus—Experian, TransUnion, and Equifax—don’t receive reports about routine bank account closures. This means that simply deciding to close a bank account and following through with proper procedures won’t create any negative marks on your credit report.

Indirect Effects: When Account Closure Can Damage Your Credit

The real danger emerges when an account closure involves a negative balance. This is where the distinction between closing a bank account and maintaining financial responsibility becomes critical. If you allow your account to go into overdraft and fail to cover the shortfall, the consequences can be severe and long-lasting.

When you overdraw an account, your financial institution typically covers the transaction and charges you a fee. If you don’t deposit sufficient funds to resolve both the overdraft and the associated fee, your bank may escalate the situation by sending your outstanding balance to a third-party debt collection agency. Once this happens, the negative account history can be reported to the three major credit bureaus.

A collection account appearing on your credit report can significantly reduce your credit score and remain on your report for up to seven years—a substantial penalty for what might have started as a simple accounting error. Beyond credit bureaus, many financial institutions also report negative account information to ChexSystems, a specialized reporting agency that tracks consumer behavior in the checking account arena. Banks frequently consult ChexSystems data when evaluating new account applications, meaning overdrafts and other negative items could prevent you from opening accounts elsewhere.

Safe Closure Procedures to Protect Your Credit Score

If you must close a bank account, following a structured process ensures you won’t accidentally create credit damage. The key is methodical planning and complete follow-through.

Begin by opening a new bank account before closing your existing one. This prevents the common problem of having no active account when you unexpectedly need to write a check or make a bill payment. Research your options carefully—compare monthly service fees, ATM network coverage, branch locations, debit card benefits, and customer service quality—to select an account that truly fits your financial lifestyle and helps you avoid unnecessary fees.

Once your new account is established, update all direct deposits and automatic payments. Contact your employer to complete the required paperwork for redirecting your paycheck. Then systematically transfer all recurring bill payments—including rent, insurance premiums, and subscription services—to your new account. Review several months of bank statements to ensure you don’t miss any automatic charges.

After all automatic transactions have been rerouted and processed, transfer any remaining funds to your new account. If your old account has a minimum balance requirement, wait until you’re ready for closure before withdrawing these funds, otherwise you could be charged a final maintenance fee.

Complete the closure process by contacting your bank. Some institutions allow online cancellation, while others require visiting a branch or submitting written documentation. Contact customer service if you’re unsure about your bank’s specific procedure. Finally, request written confirmation that your account has been successfully closed—this documentation can protect you if disputes or errors surface later.

Keeping Your Account Active: Strategic Alternatives

If you rarely use a bank account but want to avoid closure, federal law requires banks to transfer abandoned accounts to the state’s treasury department after extended inactivity. In California, for example, accounts with zero activity for three years are considered dormant and converted to unclaimed property.

If you want to maintain an active account without regular usage, consider these low-effort strategies:

• Make occasional transactions. Small purchases using your debit card—even something minor like a coffee or a gift card—can keep your account in active status.

• Set up automated payments. Configure automatic payments for bills you already pay regularly, such as phone service or streaming subscriptions. Just monitor your balance to ensure sufficient funds cover each charge.

• Perform periodic cash operations. Occasionally withdraw or deposit cash to maintain account activity. Stick to in-network ATMs to avoid unexpected fees.

Conclusion

Your credit score won’t automatically suffer simply because you close a bank account—but negligence or poor timing can create serious, long-lasting financial consequences. Taking the time to close your account properly, ensuring no negative balance exists, and following the systematic steps outlined above will protect both your credit report and your banking future. The effort required to do this correctly pales in comparison to the years you could spend recovering from a credit damage caused by an improperly closed account.