Many consumers know that their credit scores actually take a dip when they close their credit card accounts, which is why they think twice before doing so. This concern may also carry over to checking accounts.
Q: I’m ready to switch over from my current bank to an online bank. People say that closing my credit cards will hurt my credit score, so I’m wondering if that will also happen if I close my checking account. I could be buying a house soon so I don’t want that to affect my mortgage application. Should I just leave it alone for now?
- Peter L.
A: Peter, if your checking account is in good standing, there should be no effect on your credit card.
There are few ways that a checking account can hurt your credit score. The act of closing a checking account, however, isn’t one of them.
Here are the common instances when your credit scores are affected by your checking account:
Opening the account
In addition to reviewing your ChexSystems report, some banks and credit unions will pull your credit report when you open a checking account.
Since it is a consumer-initiated inquiry, also known as a hard inquiry, it can temporarily ding your credit scores.
Having a negative account balance
When you have a negative account balance for an extended period of time, possibly because of outstanding overdrafts, the bank could send your account to a debt collection agency. Your checking account is closed as a result.
In this case, your credit scores will experience a significant decrease.
Having an overdraft line of credit
Banks that provide an overdraft line of credit may pull your credit report if you opt to have this service. Basically, it is a small credit line to cover any transactions that will result in a negative balance in your checking account.
And, like with any inquiry for a loan or credit line, you’ll see your credit scores will drop slightly.
This may be the only condition that would have some effect on your credit scores when you close your checking account. Since you will lose this line of credit, it can increase your debt utilization ratio (total debt divided by total combined credit limits), which temporarily hurts your credit scores.
More likely than not, you shouldn’t worry too much about the impact of closing your checking account on your credit profile.