You could be concerned about your credit score if you’re considering shutting a bank account. In general, closing a bank account won’t have a negative influence on your credit score, but there are certain side effects that you must know. This article goes into great detail on these effects to assist you in making a wise financial choice.
Indirect Effects on Credit Scores
Closing a bank account might not affect your credit score in most cases. However, you may indirectly observe the impact on your credit score in certain ways.
Let’s discuss some of these indirect effects:
Collection Agency
The bank could transfer your debt to a collection company if your closing account has unpaid fees or negative balances. Your credit score may be lowered due to a negative entry on your credit report. Settling unpaid account balances before terminating the account is crucial to prevent this situation.
Reduction in Credit History’s Length
Your credit history length is decreased when you close an account that has been active for a long period, which might affect your credit score. Your credit score considers the duration of your credit history, and the longer it is, the better it will make your score. Consider keeping an old bank account open and using it periodically to keep your credit history active.
Missed Deposits or Payments
Before terminating the account, transfer any scheduled recurring payments or direct transfers to another account. Negative effects on your credit score might arise from forgetting to do this, which could lead to missing payments or deposits. Before terminating the account, please list any associated direct deposits and automated payments and update them.
Close Your Bank Account Wisely
Closing a bank account doesn’t necessarily impact your credit score. However, you must close your bank account wisely and ensure certain things before taking the step.
-
Transfer any automatic payments and bills, even from your debit account, to your new one. These payments might start accumulating on your previous account and lead to debt in other ways.
-
Settle all the pending transactions on your old account before closing the account. Any remaining debt may add up and affect your credit score.
-
Close the old account and confirm the process is done by contacting your bank. You can email or call them to ensure your account is closed and there are no more pending transactions.
-
You may have certain taxes remaining if you earned interest on your account. Contact your bank and ask them for related paperwork to save you from any hassles in the future.
Final Thoughts
Closing a bank account won’t affect your credit rating in most cases. It’s crucial to consider the potential adverse effects, such as unpaid fees, shortened credit history, and missed payments or deposits.
Pay off any outstanding amounts, keep open accounts with a long credit history, and update any automated payments or direct transfers before closing any accounts. Doing so will help save you from losing your credit score.
