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Does closing a bank account affect your credit?

(NerdWallet) – Ready to close your bank account but worried you might hurt your credit score? Don’t be.

By taking a few simple steps and practicing good banking habits, you can avoid having your bank account closed affect your credit. Here’s what you need to know.

Generally, closing a bank account does not affect your credit

Simply closing a bank account does not directly affect your credit. The Consumer Financial Protection Bureau confirms that the three major credit bureaus — Experian, Equifax and TransUnion — typically do not include checking account history on their credit reports. But your credit can suffer if you’re not careful when closing your account.

Your credit score can go down if your bank account is not in good standing

Certain deficiencies in your bank account history can affect your credit. For example, if you close an account while the balance is negative or a the bank closes your account due to being overdrawn for a long period, the negative balance may go to a third party collection agency. This can cause your credit report to be ruined.

“If the bank sends this outstanding debt to a collection agency, it can be reported to any of the three credit bureaus,” Marguerite Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Md., said in an email. “Collections can cause a lowering your credit score.”

How to close your bank account without affecting your credit

You need to ensure that your account is in good standing and remains so even after your account is closed. Here are the steps to properly close your bank account:

1. Make a list of periodic deposits and withdrawals. Periodically pay attention to bills and payments made by direct debit from your account. It’s just as important to note any deposits you receive, even if they’re only incidental. For example, you don’t want your tax refund going into a closed bank account, Miguel Gomez said in an email. Gomez is a wealth advisor at Lauterbach Financial Advisors in El Paso, Texas and host of the “Dinero en Español” podcast.

2. Open a new account and transfer money and automatic transactions to it. “If you have automatic payments that are taken out of the account you’re closing, and you don’t update them before closing the account, it can affect your credit because of missed payments,” Gomez said.

3. Settle any balances on your old account. You should leave some money in your old account to cover any pending transactions you may have missed, Cheng said. You can also contact your bank to ask if you have any debt. If you opened an account to take advantage of the cash bonus, make sure your account has been open for the minimum required time to avoid an early closing penalty.

4. Close your old account and confirm its closure. Once you are satisfied that there are no pending transactions, you can close your account. You may be able to complete the closing online, but some financial institutions require you to fill out a form to mail in, visit a branch, or call in to close your account.

The bank may send you an email to confirm that the account is closed, or you may contact a representative by phone or in person to confirm that the account is closed and request confirmation in writing.

Note that if your account has earned interest or bonus cash during the year, you will need to withdraw proper bank paperwork for your taxes.

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

https://www.mystateline.com/news/does-closing-a-bank-account-affect-your-credit/

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