Does closing a bank account affect your credit? The only time closing a bank account affects your credit is if it's closed with a negative balance.

If you closed your bank account with a $0 balance, it will not affect your credit score.

If you closed your bank account with a negative balance, it will affect your credit score because the bank transfers the negative balance account to a collections agency.

When Closing a Bank Account Affects Your Credit Score

The only time closing a bank account (checking or savings) affects your credit score is if it’s closed with a negative balance.

You never want to close a bank account with a negative balance.

Collections Agency

If you closed your bank account with a negative balance (or the bank closed it because you never paid the negative balance), the bank uses a collections agency to try and get the money back.

Any unpaid balance that is reported to a collections agency is bad.

A collections agency reports unpaid debts to the credit bureau. The credit bureau keeps a history of your credit activity and anything reported from a collections agency negatively affects your credit score.

Also, any unpaid debt that goes to a collections agency stays on your credit report for seven years, even if you pay it back within two weeks.

Do everything you can to prevent an unpaid bill from being reported to a collections agency.

If you're having trouble coming up with the money, call the bank and ask for help. Ask the bank if there's anything they can do to reduce your balance or give you more time to pay it off.

It's a thousand times better to work with a bank than a collections agency.

Here's a visual to help you understand how an unpaid negative balance affects your credit score:

Overdraft Protection

A negative balance (or overdraft) alone does not affect your credit score.

If you have a negative balance but pay it off within a few days, it does not affect your credit score.

Remember, a negative balance only affects your credit score if you close your bank account with the negative balance.

A negative balance is most likely caused by overdraft protection. Overdraft protection lets you spend more than what you have in your account.

For example, if you have overdraft protection turned on, you can buy something for $125 even though you only had $100 in your account. In this example, the bank loans you $25 and your account has a negative balance of -$25.

Overdraft protection isn't free. The bank charges you a fee for letting you borrow money and spend more than what you had in your account. The fee is called an Insufficient Funds fee.

Insufficient funds fees are very expensive. They can be as high as $35 or more per transaction. So, if you have a negative balance and buy something again, you're charged another insufficient funds fee again.

I recommend turning off overdraft protection altogether. In my opinion, it's not worth paying the high fees.

Does Bank Account Information Show Up on My Credit Report?

Bank account information does not show up on your credit report.

Because bank account information does not show up on your credit report, bank account activity such as deposits, withdrawals, or transfers does not affect your credit score.

Bank account information doesn't show up on your credit report because it’s not debt.

Your credit report is a history of how you manage debt (money you borrowed). Debt includes credit cards, student and car loans, and mortgages.

The money you deposit and withdraw from your checking and savings account is not debt. You did not borrow that money; you earned it.

How to Close Your Bank Account the Right Way

Your bank account doesn’t automatically close when you take your money out.

Most banks have a minimum balance and/or deposit requirement. If you don't meet the requirements, you're charged a monthly service fee. If you take all your money out and don't let the bank know you want to close the account, you could end up with a negative balance due to monthly service fees.

To safely close any bank account (checking or savings) without it affecting your credit score; follow the six steps below:

ChexSystems

Is this the first time you hear of ChexSystems? Most people have never heard of them.

Similar to how the credit bureau keeps track of your debt activity. ChexSystems keeps track of your bank account activity.

The difference between the credit bureau and ChexSystems is that ChexSystems only keeps track of your bad bank account activity. The credit bureau keeps track of your good and bad debt activity.

If you’ve closed more than one bank account with a negative balance, have frequently written bad checks, or have fraudulent activity in your account, ChexSystems keeps a history of it.

ChexSystems keeps a history of bad bank account activity for up to 10 years.

Banks use ChexSystems to make sure you don’t have a bad history of mishandling your bank accounts.

If you’ve switched banks often, have opened and closed several bank accounts, you have nothing to worry about as long as you haven’t closed a bank account with a negative balance.

What Happens When You Close Your Bank Account?

When you close a bank account, any cards linked to the account are deactivated (no longer work) and you can’t deposit or transfer money to the account.

If you closed your bank account the right way, you shouldn’t have any money left in the account so deactivating your card(s) won't affect you.

If you forget to update any direct deposits or automatic withdrawals connected to the account, the transactions won't go through. For example, if the account you closed was connected to your Amazon payment, the payment won't get processed.

After your bank account is closed, you might be able to log in online to see account history and statements but you won’t be able to use the account like add money to it.

If you closed your bank account with a negative balance, the account gets reported to ChexSystems and gets transferred to a collections agency.

Does Closing a Bank Account Affect your Credit Summary

In summary, closing a bank account only affects your credit when you close the account with a negative balance.

A negative balance is technically a line of credit. Your credit score is affected by all credit (debt) activity.

When you refuse to pay a negative balance, the bank hires a collections agency. You never want an unpaid debt to go to a collections agency.

Anything that goes to a collections agency hurts your credit score and stays on your credit report for seven years.

If you have a negative balance and are finding it hard to come up with the money to pay it off, work with your bank to come up with a solution. It's best for the bank and yourself not to report anything to a collections agency.

In general, bank account activity does not affect your credit. Your credit score is a measure of how you manage debt and money in your checking and savings account is not debt.