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. However, 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 can 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.

You could also talk to a financial advisor about the best long-term strategies to improve your personal finances.

Savings Account Closing Basics

A savings account is a keystone to good personal financial health. However, there may be times when you want to close your account. Maybe you have found another account with lower fees or one that pays more interest. If you have multiple savings accounts, closing all but one could make it easier to keep track of your finances.

Maintaining a good credit score is also critical to maintain solid financial standing. Your credit score determines whether you’re approved for a loan to purchase a new car or home, and it also determines the rates you get, affecting the overall cost of your loan. Credit scores are also considered when you are applying for a job, an insurance policy and even a residential lease.

Thankfully, closing a savings account won’t affect your credit score. Banks don’t typically report account activity to the major credit bureaus, although they do report closed accounts with an outstanding balance to ChexSystems.

What Is ChexSystems?

ChexSystems is a service that tracks individual consumer bank activity, such as the opening and closing of accounts, as well as 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 will not show it, at least not yet. The real impact occurs if you do not pay the outstanding balance.

Causes and Consequences of Negative Balances

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, not maintaining a sufficient balance or making a wire transfer. Usually, these fees will be paid out of the funds in the account. However, 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 fail to resolve the balance and it is turned over to a collection agency. The collection agency usually reports it to a credit bureau, and it becomes a negative mark on your payment history, ultimately affecting your credit score. Even worse, a collections account stays on your report for seven years, dragging down your score.

Safely Closing Savings Accounts

You can avoid trouble by using caution when you close your accounts.

Before closing a savings account, make sure you have another one open. If not, take the time to open a new account. Be sure to cancel any automatic transfers you may have going to or from the account you want to cancel, and wait for any recent transfers to clear. It’s also a good idea to check with your bank to ensure you do not 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 it has been left in good standing.

How to Monitor and Dispute Banking Record Errors

To keep track of your banking history, you can review your consumer file with reporting agencies such as ChexSystems, Early Warning Services or TeleCheck. These services log activity related to deposit accounts, including overdrafts, unpaid fees and account closures.

You are entitled to request one free ChexSystems report every year by visiting their website. Regularly checking your report can help you catch mistakes or outdated entries that might make it harder to open new accounts.

If you notice a mistake in your report, you can file a dispute. Send a written request to the reporting agency, explaining what information you believe is wrong and including any documents that support your case. The agency must look into your claim, usually within 30 days, and will notify you of the outcome. If the entry is confirmed to be incorrect, the agency must update or remove it from your file.

If the agency does not make any changes, you can contact the bank that submitted the information to try and resolve the issue directly. You also have the option to add a brief written explanation to your file.

Staying on top of your report and addressing errors early can help preserve your access to banking services.

Bottom Line

A consumer checks their credit report on their phone.

So, can closing a savings account affect your credit score? It all depends. You could do your credit score some damage if you close a savings account with an outstanding negative balance and then fail to 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. Instead, be sure to resolve any balances and monitor your old account to ensure no unexpected withdrawals pop up that could negatively impact your financial standing.

You can consider working with a financial advisor that can help you create a banking strategy that works for your long-term goals.

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.