Does opening and closing bank accounts affect credit

Dear Dr. Don,
I have several savings accounts with different banks. The oldest savings account was established six years ago, and the most recent was opened two years ago. I am planning to close them all and move the money into a money market account paying at least 0.9 percent interest. My concern is whether this is a great decision. Would it hurt my credit score if I close all my savings accounts?

Thanks,
— Garry Gains

Dear Garry,
Well I certainly wouldn’t consider you a “hot money” type jumping around for high returns, even though you are chasing yield by consolidating your savings accounts into a new account paying a higher interest rate.

Your concerns should be with both your credit score and your consumer banking report. Sometimes a bank will do a “hard pull” on your credit report when you open an account. It shows up as a credit inquiry on your credit report, even though you haven’t applied for a loan. This credit inquiry can influence your credit score because it stays on your credit report for two years, and it impacts your credit score for that first year. That said, the impact should be minimal and shouldn’t drive your decision to consolidate your bank accounts.

On its frequently asked questions Web page, the bank offering the money market account you’re considering states that your credit score will never be affected. That means they’re doing a “soft pull” on your credit report. A soft pull is just a review of your credit report information without indicating you’re applying for credit.

Your consumer banking report, also known as your ChexSystems report, lists your banking relationships and whether you’ve had any issues in your accounts, such as a bounced check. Negative information stays on your ChexSystems report for five years. Closed savings accounts will show up on your report but won’t influence your credit score.

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Can Closing Bank Accounts Have An Effect On Your Credit?

Can closing things like a bank chequing or savings account impact your credit score? Like most credit-related questions, the answer depends on circumstance.

Your Account Standing

If you're closing a bank account that is in good standing, there is no reason that it should affect your credit score. You can freely move to a different financial institution, or relocate to another part of the world. Closing and moving accounts that are in good standing will not hurt your score.

Bank accounts are sort of like utility bills in the sense that they do not report to the credit bureaus unless they're in bad standing. If you have a negative balance and are not making payments, this can begin to appear on your credit report. If what you owe on your closed account has gone to collections, you can be sure that this will drag your credit score down.

To Summarize

If your accounts are empty and you don't owe anything, you're in the clear, but an overdrawn account can show up on your credit score. When looking at closing your bank account, ensure that you don't owe anything and that they're in good standing.

If you've damaged your credit score due to closing overdrawn accounts, there's no need to panic. With Refresh Financial's credit building programs, boosting your score has never been easier! Click here for more information on how to build your score with Refresh's credit builder programs.

Ready to close a bank account but worried you could ding your credit score? Don't be.

By taking a few simple steps and practicing good banking habits, you can avoid having your credit affected by a bank account closure. Here's what you need to know.

Generally, closing a bank account doesn't affect your credit

The mere act of closing a bank account doesn't have a direct impact on your credit. The Consumer Financial Protection Bureau confirms that the three major credit bureaus — Experian, Equifax and TransUnion — don't typically include checking account history in their credit reports. But your credit could suffer if you're not careful when you close an account.

Your credit score could drop if your bank account isn't in good standing

Some blemishes in your bank account history could affect your credit. For example, if you close an account while the balance is negative or a bank closes your account because it's overdrawn for an extended period, the negative balance could go to a third-party collection agency. That could lead to your credit report being marred.

"If the bank sends this outstanding debt to a collection agency, it could be reported to any of the three credit bureaus," Marguerita Cheng, certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, said in an email. "Collections can trigger a drop in your credit score."

How to close your bank account so your credit isn't affected

You'll need to make sure that your account is in good standing and remains that way even as you close it. Here are the steps to close your bank account properly:

1. Make a list of recurring deposits and withdrawals. Note the bills and payments paid by direct debit from your account periodically. It's just as important to note any deposits you get, even if they're only occasional. You don't want your tax refund to go to a closed bank account, for example, said Miguel Gomez in an email. Gomez is a wealth advisor at Lauterbach Financial Advisors in El Paso, Texas, and host of the podcast "Dinero en Español."

2. Open your new account and move money and automatic transactions to it. "If you have automatic payments drawn from the account you're closing and you don't update them before closing the account, that can affect your credit due to missed payments," Gomez said.

3. Settle any balances on your old account. You should leave some cash in your old account to cover any pending transactions you might have overlooked, Cheng said. You can also contact your bank to ask if you have any outstanding balances. If you opened an account to take advantage of a cash bonus, make sure your account has been open for the minimum time required to avoid an early closure penalty fee.

4. Close your old account and confirm its closure. Once you've ensured there are no pending transactions, you can close your account. You might be able to complete the closure online, but some financial institutions require that you fill out a mail-in form, visit a branch or call to close your account.

The bank may send you an email to confirm the account closure, or you can contact a representative by phone or in person to confirm the account has been closed and request confirmation in writing.

Follow these steps when you close your bank account and you'll avoid fees, missed bills and credit woes.

Does closing accounts hurt your credit?

How much will my credit score drop if I close an account?