In the realm of personal finance, managing your credit score is paramount. While many are familiar with how various factors like credit card payments and loans influence their score, fewer understand the potential impact of closing a checking account. Contrary to popular belief, closing a checking account doesn't directly affect your credit score, as checking account activity isn't reported to credit bureaus. However, there are indirect ways in which closing a checking account can impact your financial standing. Let's delve deeper into this topic to gain a comprehensive understanding.
Why Closing a Checking Account Doesn't Directly Affect Your Credit Score:
Checking Account Activity Isn't Reported: Unlike credit cards and loans, which involve borrowing money, checking accounts are used for depositing and withdrawing funds. As such, the activity within a checking account, such as deposits, withdrawals, or maintaining a balance, isn't reported to the major credit bureaus—Equifax, Experian, and TransUnion.
Credit Score Factors: Credit scores are primarily influenced by factors like payment history, credit utilization, length of credit history, types of credit accounts, and new credit inquiries. Since checking account activity isn't included in these factors, closing a checking account won't directly impact your credit score.
Indirect Effects of Closing a Checking Account:
While closing a checking account doesn't directly affect your credit score, it can have indirect consequences on your financial health:
Impact on Banking Relationships: Closing a checking account may sever ties with a particular bank, especially if you've been a customer for a long time. This can affect your relationship with the bank and its future willingness to extend credit or offer favorable terms.
Loss of Account History: Your banking history, including the length of time your accounts have been open, contributes to your overall financial profile. Closing a checking account erases the history associated with that account, potentially impacting your credibility with future lenders.
Potential Credit Application: Some banks may perform a credit inquiry when you open a checking account, particularly if you're applying for an overdraft line of credit or a linked credit card. While this inquiry won't significantly impact your credit score, it adds to the pool of inquiries on your credit report.
Overdraft Protection: If you close a checking account that's linked to other accounts or services, such as overdraft protection or automatic bill payments, it could lead to missed payments or overdraft fees if not handled properly.
Tips for Closing a Checking Account Wisely:
If you've decided to close a checking account, it's essential to do so strategically to minimize any potential negative impacts:
Review Your Finances: Ensure all outstanding transactions have cleared, and any linked automatic payments or direct deposits are rerouted to another account.
Inform Direct Deposit and Automatic Payment Providers: Update your direct deposit information with your employer and notify companies of any automatic payments linked to your old account.
Transfer Remaining Funds: Withdraw or transfer any remaining funds from the account and keep a record of the transaction for your records.
Follow Bank Procedures: Each bank has its procedures for closing accounts. Follow these procedures diligently to avoid any complications or fees.
Monitor Your Credit Report: Check your credit report after closing the account to ensure it accurately reflects the closure and that there are no errors or discrepancies.
Conclusion:
While closing a checking account doesn't directly impact your credit score, it's essential to consider the indirect consequences and manage the process carefully. By understanding how closing a checking account can affect your financial standing and taking proactive steps to mitigate any potential issues, you can navigate this aspect of personal finance with confidence and ease. Remember, maintaining a healthy credit score involves not only managing credit accounts but also being mindful of your banking relationships and overall financial behavior.
Call on (888) 803-7889 to check your credit score now!
Resource
What is a credit builder loan, and can it raise your credit score?
The Complete guide of Debt Refinancing
What Is a Starting Credit Score & how its work?
Does checking your credit score lower it?
