Does Closing Your Bank Account Hurt Your Credit Score?

We all have that one bank account that rarely gets used. Maybe one bill may come out every month or you don't even use it at all. Either way, keeping your bank accounts up-to-date is a good idea, which can mean closing accounts that you do not really use.

However, many people are worried about closing a bank account in case it impacts their credit score. Is it a credit card myth or can closing a bank account affect your credit report? Let's explore how closing a bank account might influence your credit score and the best practices to follow.

How Does Closing My Bank Account Affect My Credit Score?

Closing a regular bank account, like a current account or a savings account, will not directly impact your credit score. Credit agencies do not monitor your everyday bank account activity, so having fewer transactions will not impact your credit file. However, there are scenarios where a closed bank account could indirectly lead to a drop in your credit score.

If your account has a negative balance or is closed due to unpaid outstanding debt, it could be reported to the credit reporting agencies. Such adverse reports can appear on your credit report for up to six years, potentially damaging your credit score. Moreover, your credit score could suffer if your old bank account was linked to automatic payments for a credit card account or loans, and those payments are missed due to the account closure.

What is the Best Way to Close Your Bank Account Properly?

It is important to close your bank account correctly to stop any negative impact on your credit score. Here is a step-by-step guide you can follow:

1. Open a new bank account: Before closing your old account, ensure you have a new account set up, whether with a different bank or a credit union.
2. Update automatic transactions: Transfer all standing order payments and direct debits to your new bank account details to avoid missed payments.
3. Clear pending transactions: Ensure any pending transactions and cheques have been processed and cleared from your old account.
4. Transfer your funds: Move your money from the old account to the new one, making sure no unpaid overdraft balance is left behind.
5. Notify relevant parties: Remember to tell your employer and anyone else who deposits or withdraws money from your account about the change to your bank account information.
6. Request account closure: Contact your bank to formally request the closure of your account. You can often do this through your online banking now.
7. Monitor your credit report: Check your credit report regularly to ensure no negative information related to the account closure appears on it.

Keep an Eye on Your Credit Score

It is essential to keep checking your credit report after closing a bank account. You can get a free credit report anytime from the three major credit reference agencies: Equifax, Experian and TransUnion. Monitoring your credit history helps you catch any inaccuracies or negative information early.

Several factors, including your payment history, overdraft limit and the length of time that you had your bank account for can influence your credit score, but closing a bank account does not have to hurt your credit score if done properly. You can maintain the healthy state of your credit file by following the right steps when closing your account and then keeping an eye on your credit report. Remember, it pays to stay proactive in managing your finances to avoid unintended consequences for your credit file.

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