Do you want to close your savings or checking account but are worried about damaging your credit? Generally, your credit record is not negatively impacted if you leave your account in good standing.
However, there are several steps you need to take to build a good foundation of finance and maintain your creditworthiness while shutting down your bank account. Let’s discuss the factors to consider and the right methodologies in this blog. Read till the end to learn about it.
Closing a bank account normally has no negative impact on your credit. The score you receive for credit is calculated by how you manage your loans, and it does not involve your checking or savings accounts. Bank account closures are not reported to the credit bureaus.
However, it is important to note that having a negative balance when the account is closed can harm your credit score. If you overdraw from your bank account, the financial institution pays the funds in exchange for a fee. When consumers fail to deposit sufficient funds to cover the transaction and the fee, they reach out to a third-party collection agency, which will then report the accounts to the credit agencies. When a collection account gets recorded to your credit report, it might lower your credit score and remain on your record for up to seven years.
Fortunately, there are a few ways to prevent your credit from falling, which we’ll discuss in the coming section. But first, let’s understand how credit bureaus and ChexSystems fit in the whole financial reporting scenario.
Equifax, Experian, and TransUnion provide information on how people manage borrowed funds. As a result, information in a person’s credit report can include balances and payment histories of home loans, personal loans, and credit card bills.
If you liquidate an overdrawn account without resolving the negative balance and the extra charges, the bank may transfer the case to a collection agency like ChexSystems.
ChexSystems is a specialized reporting agency where banks provide consumer information such as a history of rejected checks and outstanding negative balances. This agency works under the Fair Credit Reporting Act.
It stores the consumer details for five years and the financial institutions refer to the data preserved here for deciding while approving applications.
Protecting your credit is crucial for having a secure financial life. So you need to follow the right methods while closing your bank account so it doesn’t hit your record. Here are the steps to follow:
It takes a while to fund and establish a fresh account, so you must continue to use the old account for activities like online bill payment, check writing, and money transfers through PayPal and other digital platforms.
It is critical to do so because losing access to your bill payment options for an extended period can hurt your credit.
Deposit money into the new account, whether in cash or digitally, from the old one to the fresh one.
If your paycheck is scheduled to be immediately transferred into your old bank account, notify your employer of your new bank account details and request that the direct deposit be diverted to the new account.
This way, you’ll be able to start building a good record for the new bank savings or checking account.
Once you have sufficient funds in your new account, update all the automated payments that are to be deducted from this account. It could be anything like rent or mortgage, loans, insurance premiums, and other subscriptions.
Make sure to check your former bank account’s transaction history to ensure that you have not overlooked any such automated payments, which could result in a negative balance.
After completing all the steps listed above, you can proceed with the account termination. You can close your account online, go to a local branch, or send a written request. You can also learn about your bank’s account closing process by visiting the official website or contacting customer service directly.
Once this is done, the final step is to get formal confirmation from your bank that your account has been effectively closed. This will serve as proof and can help you avoid trouble in the future.
So these are the step-by-step instructions for closing your bank account smoothly and without affecting your FICO score.
There are certain important factors to consider before you proceed to shut down your bank account. Let’s discuss them here:
So you must bring this rate below 30% first, then go on to terminate the account.
Closing old credit accounts can have an impact on your FICO score, especially if it alters your credit utilization ratio, credit mix, or average account age. So these are the factors you must look over before deciding to close the account.
Closing a bank account doesn’t directly impact your credit score. However, things can take a negative turn when you shut down the account in bad standing. If you need to close your bank account for any reason, follow the steps outlined above to ensure that you do so properly and do not leave a mark on your credit report.
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Ans: The reports do not contain bank account opening and closing details. These reports only highlight the condition of your creditworthiness based on your activity.
Ans: Yes, financial institutions allow customers to shut down one account and open another.
Ans: No, leaving a bank account with a positive record doesn’t influence credit.
Ans: Closing a checking account won’t directly impact your FICO record.
Ans: No, you can save on the annual maintenance fees. However, closing the account in the wrong way can hamper your credit.
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