Believe it or not, some banks actually pull your credit history and score when you open a savings account. For example, Ally Bank will check your credit, and it will deny a savings account application if the applicant’s credit does not meet the bank’s undisclosed standards. And that brings us to a question a reader recently asked–Will closing a bank account hurt your credit?
The short answer is no, although there are some important exceptions to understand. Your credit report contains a broad range of information about your credit history. However, of all the information in your credit report—identifying information, lines of credit, payment history, amount of available credit in use, recent credit inquiries, and bankruptcy or court judgments—closing a bank account is not part of the formula that generates a FICO credit score.
That said, there are some things you should know about your bank accounts and your credit. First, although closing an account won’t harm your credit score, creditors may nonetheless check your banking history as part of vetting you for credit. When you apply for a mortgage, for example, you typically have to provide bank statements for the past three months. Mortgage lenders like to see a regular savings pattern, and a closed bank account obviously won’t help in this regard.
Second, sometimes the bank closes your account. Depending on why the bank closed your account, there can be some significant ramifications for you. For example, if you’ve bounced too many checks or otherwise overdrawn your account, the bank may report your account to ChexSystems. ChexSystems is similar to a credit score, except that it monitors how customers treat their bank accounts. If a bank reports your account to ChexSystems, it will be very difficult to get a bank account for up to five years.
Third, if you close an account with a negative balance and fail to pay it back, you can expect the bank to report the unpaid balance to the credit bureaus. In this regard, the amount of money you owe your bank is really no different than any other unpaid bills you may have. And failing to pay the amount owed can be a big black mark on your credit report, resulting in a lower score.
There is one last way that closing an old account to open a new account can harm your credit score: if opening the new account results in a hard pull on your credit (think Ally Bank as noted above). A hard pull is the type of credit check that reduces your score by a few points. If in the near future you’re considering a big loan, such as a mortgage, it’s a good idea to ask the bank you’re opening an account with if its credit check is a hard pull.