Can Closing a Savings Account Affect Your Credit Score?

Closing a savings account can have a negative effect on your credit if the account has a negative balance when closed. Credit bureaus don’t consider savings and checking activity, including account closings, when compiling credit scores. But if you don’t pay off a negative balance on a closed account, the bank eventually may turn it over to a collection agency. This likely will be reported to a credit bureau, which may result in a large and lasting downgrade of your credit score. You can avoid problems by closing savings accounts correctly and making sure there are no outstanding balances. Talk to a financial advisor before making major moves that could affect your personal finances.

Savings Account Closing Basics

Having a savings account is a keystone to good personal financial health. However, sometimes you may want to close a savings account. For instance, you may find another savings account that has lower fees or pays more interest. If you have multiple savings accounts, closing all but one may make it easier to keep track of your finances.

Maintaining a good credit score is also important for solid financial standing. Your credit score can determine whether or not you can get a loan to purchase an automobile or home, as well as the cost of the loan. Credit scores also are considered when you are applying for a job, an insurance policy and even a residential lease. Most of the time, closing a savings account won’t affect your credit score at all. Banks don’t report account activity to the credit bureaus. However, banks do report accounts that are closed with an outstanding balance to ChexSystems.

What Is ChexSystems?

ChexSystems is a service that keeps files on individual consumer bank activity such as opening and closing accounts, credit inquiries, bounced checks and unpaid fees. Banks, credit unions and credit card issuers turn to ChexSystems for information about applicants for new accounts. Negative entries in your ChexSystems file, such as a history of abusing overdraft protection or opening and closing too many accounts too quickly, may make it hard to open a new account.

ChexSystems also reports some account-related activities to credit bureaus. Specifically, if you close an account with an outstanding balance, this information may wind up in your credit file, courtesy of ChexSystems. Even then, your credit score likely won’t feel it, at least not yet. The real impact occurs if you don’t pay the outstanding balance.

Causes and Consequences of Negative Balances

SmartAsset: Does Closing a Savings Account Affect Credit?

There are a number of ways a savings account can wind up with a negative balance. You may incur a fee for using an ATM, for not maintaining a sufficient balance or for a wire transfer. Usually, these fees will be paid out of the funds in the account. But if you close the account before the fees are paid, you could wind up with a closed account that has an outstanding negative balance.

This is still not a problem for your credit score unless you don’t pay the bank its money and it turns the account over to a collection agency. When the collection agency reports it to a credit bureau, as is likely, this will go down as a negative on your payment history, which is the major factor affecting your credit score. And a collections account stays on your report, dragging down your score, for seven years.

Safely Closing Savings Accounts

You can avoid this situation by closing your accounts smartly. Before closing a savings account, first, open a new one or at least make sure you have one open. Cancel automatic transfers to or from the account. Wait for any recent transfers to clear. Check with the bank to make sure you don’t have a negative balance. Consider leaving some funds in the account for a few weeks to cover any late-arriving fees. After closing the account, check back later to ensure that you have left it in good standing.

The Bottom Line

You could do your credit score some damage if you close a savings account that has an outstanding negative balance and then don’t make good on the debt with the bank. Unpaid negative balances may be turned over to collections agencies, which will likely report this to credit bureaus. Any time an account goes to collections it will show up as a hit on your payment history, which is the most important factor considered when calculating credit scores.

Tips for Saving

It’s difficult to know how much you should keep in a liquid savings account. You’ll want to look at a number of factors from your monthly expenses to your income potential. You can also just work with a financial advisor who can help you plan properly and make a plan to get there. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you’re looking for a new savings account, SmartAsset’s review of the best savings accounts is a good place to start. This review gathers key data points such as annual percentage yield, fees and minimum opening balance and identifies the institutions that have the best overall offerings.