3 min read

does closing a bank account affect my credit score

Written By

Clay Shiffman

Credit scores and bank accounts finance for many milestones throughout your life. Credit scores help lenders, creditors, and financial institutions assess your creditworthiness and the likeliness of paying your debts on time.

A higher credit score gives you a higher chance of securing larger loans with better interest rates and payment terms. Bank accounts are insured accounts that help you make purchases or save and invest for financial goals.

Your credit score depends on the information credit bureaus assess from your credit report, such as your credit mix, payment history, credit utilization ratio, and credit history. The length of your credit history is one factor that can influence your score.

Understanding the relationship between the length of your credit history and your credit score can help guide your decisions about handling your bank accounts. Is closing a bank account you no longer use a good idea, or should you keep it open? Let's explore whether closing a bank account can affect your credit score.

Do bank accounts show up on a credit report?

A bank, credit union, or financial institution doesn't report your bank account information to credit bureaus. Closing a bank account won't show up on your credit report, regardless of who closed it.

For example, if you or the financial institution closes a checking, investment, savings, or money market account, your credit score won't change as the closure isn't reflected on your credit report.

Can closing a bank account hurt your credit score?

There are some cases where closing a bank account hurts your credit score. If you carry a negative balance, closing the bank account may hurt your credit score. Closing a bank account makes it more difficult to pay outstanding balances. Failure to pay off the negative balance may result in the bank or credit union sending your debt to a collection agency.

If the collection agency reports the collection amount to the credit bureaus, it can have a significant negative impact on your credit score. Debt collections can stay on your credit report for up to seven years from the date of the delinquency, even after you pay off the balance. It may impact future opportunities to secure loans with low interest rates, like qualifying for a mortgage in Canada.

Closing bank accounts vs. closing credit card accounts

There's a difference between closing a bank account and closing a credit account. A bank account typically refers to a checking, savings, investment, or money market account. A credit account is an account with a revolving credit limit, such as a credit card or line of credit. While bank accounts don't show up on your credit report or impact your credit score, activities from credit accounts do.

A financial institution, like a bank or credit union, doesn't report any activity from your bank account to the credit bureau. Unless you close an overdraft account or an account with a negative balance, your bank account information and closure don't show up on credit reports.

However, activities related to credit accounts impact your credit score. Payment and credit histories are 35% and 30% of your credit score, respectively. Closing a credit account, like a credit card, affects the length of credit on your report and impacts the credit rating given by the three major credit bureaus.

How to close a bank account without hurting your credit

Before closing any bank account, ensure it doesn't have a negative balance. You can check your account online or contact the financial institution to confirm whether there's an outstanding balance.

In addition to existing transactions on your account, consider outstanding or pending transactions that could leave a balance on your account once they go through after you've closed it.

If you're switching financial institutions, you can wait until all transactions are closed or leave some money in the original account to cover pending transactions. You can close the bank account once you've confirmed your account has a zero balance. If the bank or credit union notifies you that your account has a negative balance once it's closed, it should be a priority to pay off your account to avoid outstanding amounts reported on your credit report and affecting your credit score.

Other factors that influence credit scores

While closing a bank account typically doesn't impact credit scores, some factors credit reporting agencies list on your credit report and consider when giving your three-digit credit rating. Understanding what affects your credit score in Canada and how credit scores are calculated gives insight into how your actions and credit management skills can help or harm you.

Payment history

Payment history makes up 35% of your credit score. It indicates on-time, late, or missed payments for your credit accounts, like credit card statements, lines of credit, or mortgages. Creditors and lenders report your payment history to the credit bureau, which uses the information as one of the main indicators of your credit score. Consistently making on-time payments in full improves your payment history and can positively influence your credit score.

Credit history

Credit history is an ongoing documentation of how you handle debt repayments, including amounts owed, length of each account, number of recent account inquiries, and amount of total credit used. Credit history has a 30% weight on your overall credit score. A strong credit history shows creditors and lenders you can manage different debts responsibly and don't carry large amounts of debt. They're more likely to extend more credit to someone with a good credit history.

Credit length

Credit length is the average time from when your first account opened to your most recent. It makes up 15% of your credit score. A longer credit length positively affects your credit score, and a shorter length may cause creditors and lenders to hesitate. Closing a credit account may impact the credit length reported on your credit report, which influences your score. If you no longer use a credit account, it may be a good idea to keep it open to keep your credit length record.

Credit mix

Credit mix refers to the diversity of your credit portfolio and makes up 10% of your credit score. The more types of credit accounts you have, the stronger your credit mix. A strong credit mix can help your credit score because it shows creditors and lenders you can responsibly manage different types of credit and have the financial stability to pay them on time.

New credit

New credit also makes up 10% of your credit score. When you apply for new credit, the creditor or lender conducts a credit check to determine your creditworthiness. Hard credit checks are recorded on your credit report and can harm your credit score. Too many credit checks may indicate you've applied for large amounts of credit recently, which may be a credit risk.

Alternatives to closing your bank account

Instead of closing your bank account, consider one of these options instead:

  • Use your bank account for small purchases if you have a different main account to keep it open and active.

  • Withdrawing or depositing cash occasionally from the account keeps your account active without trying to manage it.

  • Sign up for auto payments on bills linked to your bank account to keep the account open even if you don't actively use it.

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