Does Closing a Bank Account Affect Your Credit?

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.

Note that if your account earned interest or a cash bonus over the year, you’ll need to get the proper paperwork from the bank for your taxes.

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


Ruth Sarreal writes for NerdWallet.

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How to Fix an Overdrawn Bank Account

Experiencing an overdrawn bank account can be stressful. Since banks can charge an overdraft fee multiple times a day, fees can add up quickly, piling on to the negative balance and the stress.

The consequences of overdrawing can be serious, so it’s essential to fix your account as soon as you can. The bank may temporarily suspend or even close your account. A closure could go on your record with ChexSystem, an agency that tracks customers who have had problems with their bank accounts. This could make it difficult for you to open future bank accounts, says Bruce McClary, senior vice president of communications for the National Foundation for Credit Counseling.

Here are some steps you can take to recover after an overdrawn account and tips to avoid overdrafts in the future.

Make a transfer to cover the charges

If you have cash in another account, transfer it to cover the deficit and avoid additional fees. That should be the first step you take, says Andrea Brashears-Lusk, a certified financial planner and president and founder of Wise Financial Counsel in Fort Washington, Maryland. For example, some banks charge a fee for having a negative balance for consecutive days, and that fee could be charged multiple times.

Ask your bank for a refund

If your bank doesn’t automatically waive fees for some overdrafts, call your bank and ask for a refund. The bank could be gracious and refund you, especially if it’s your first time or not a recurring issue, Brashears-Lusk says.

McClary recommends taking another step when you call the bank: Discuss how you can avoid overdrawing again. Most banks and credit unions should be willing to help you, McClary says. You might also consider contacting a nonprofit credit counseling agency to get free help on your entire financial situation, he says.

Stop using the account

“Stop using the account, period,” Brashears-Lusk says. This action also will include one-time and recurring transactions, which are tricky to keep track of and could overdraw your account even more. While figuring out expenses versus your cash flow, she recommends using a prepaid debit card to manage spending. To pay bills that require payments from a bank account, pay by money order, Brashears-Lusk says.

Use these tips to avoid overdrafts

Once you’ve fixed an overdrawn account, you can take a few critical steps to prevent overdrawing again.

Track your expenses

“You don’t have to physically balance a checkbook, but you should have some way of tracking expenses,” says Brashears-Lusk. Balancing your checkbook and budgeting don’t necessarily mean you have to stick to a spreadsheet; several budgeting apps could work.

Use low balance alerts

Automated alerts can help you avoid overdrawing an account. You can specify a threshold for a low balance and set up an alert to notify you when the account reaches that balance.

Reconsider overdraft protection

Overdraft protection transfers are an optional service that lets you move money from a linked account to your checking account to cover transactions that would overdraw the account. These transfers are typically cheaper than an overdraft charge and free at some banks, but if they’re not free, they’re a vital charge to consider.

It’s good to have overdraft protection if cash flow is tight and you’re using the bank account as your main account for expenses, Brashears-Lusk says.

But if you’re racking up fees because of frequent overdraft protection transfers, you might be better off opting out and having transactions declined. Beth McCarter, a teacher who lives outside of Dallas and tutors online, says she’s strongly opposed to overdraft protection after her experience with her first bank account in college.

“Within a single day, I had accrued $500 in overdraft [protection] fees,” McCarter says. “While it sucks to be in line and have a cart full of things and have your card declined, I would rather take that.”

Choose the right bank account

A fundamental way to avoid adding to the damage of an overdrawn bank account is to choose a bank that doesn’t charge overdraft fees or offers alternatives to costly overdraft coverage. If you select one of these bank accounts, overdrawing likely won’t be such an issue going forward.


Ruth Sarreal writes for NerdWallet. Email: rsarreal@nerdwallet.com.

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6 Ways to Budget Using Your Bank Account

If you’re having trouble sticking to a monthly budget, the solution might not be in a fancy app or a complicated spreadsheet, but rather in your humble bank account.

Whether your goal is prioritizing essential expenses or curbing a takeout habit, you can put your bank account to work to manage your money, not just store it. Give these tactics a try.

1. Keep your checking balance low on purpose

A simple approach to combat overspending is to get your money out of plain sight. Keeping a low checking account balance “holds temptations at bay and makes it more likely you’ll stick to the plan,” Anand Talwar, deposits and consumer strategy executive at Ally Bank, said in an email. Having just enough money accessible allows you to cover what you need without going over budget or dipping into money that can go toward savings. If you opt to keep a low checking account balance, use an account that has no overdraft fees or easy ways to avoid them in case you spend more than you mean to.

2. Split your money into 2 different checking accounts

One way to keep your checking balance low is to split it up. Pamela Capalad, a certified financial planner in New York City, recommends having two accounts. One account is for recurring expenses, with a buffer for variable expenses such as electricity or gas. The second is for discretionary spending — that is, purchases that are nonessential but still important or useful. This way, you know exactly how much of your discretionary funds are left for the month, Capalad says.

3. Use automatic transfers to safeguard money for essentials

If having two checking accounts is too much hassle, you can preserve money for necessities like rent and utilities by moving cash into a savings account using automatic transfers. Then, set up another automatic transfer to move it back into your checking account in time to make payments. When using a savings account this way, check how many transfers you can make each month without incurring a fee. There could be a limit, though some accounts, including high-yield savings accounts, are currently allowing an unlimited number of withdrawals each month.

4. Store your savings in a different bank than your checking account

People can fall into a trap of viewing the sum of their checking and savings accounts as their spending budget, Capalad says. Keeping your accounts at separate banks so that you see only your checking account balance can help you avoid spending more than intended. This tactic also makes it more difficult to quickly transfer from savings if you’re tempted to spend more.

5. Turn on balance alerts

Some banks send an alert when your balance is low so you’ll know when to hold off on purchases that might cause you to go over budget or even overdraft. You can often choose to receive these alerts by text, email or as a notification through the bank’s app. Your account might also have more targeted alerts available. With Huntington Bank’s Heads Up and Spend Setter tools, for example, you can set budgets to track spending by category and get alerts on your status. So if you create a monthly dining budget of $100, the bank will alert you when you’ve spent close to that amount at restaurants.

6. Try restrictive features to curb spending

Find an account that lets you take a stricter approach to avoid overspending. Ally Bank’s Card Controls, for example, lets you set spending limits for specific transaction amounts or certain merchant categories. With a Discover checking account, you can temporarily freeze your debit card as a more extreme way to prevent spending — certain charges will still go through, but you won’t be able to make any new purchases.

Whether you’re comfortable with the idea of budgeting or new to the concept, there are ways you can use your bank account to stick to a budget. You might not get budgeting right on your first try, or even your first few tries. “Remember, this is all an experiment, and it’s not a pass-or-fail kind of thing,” Capalad says. “You’ll find the system that works for you.”


Ruth Sarreal writes for NerdWallet. Email: rsarreal@nerdwallet.com.

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