Opening or closing bank accounts typically has little effect on your credit scores, according to Experian, a major credit bureau. You actually have many credit scores, and the three large bureaus (Experian, Equifax and TransUnion) and smaller agencies compute them from various formulas. The best-known are FICO scores, which come in more than 50 varieties, according to Bankrate. The major bureaus also use the newer VantageScore, but the differences between the two principal types are relatively minor.
Opening Bank Accounts
Although many financial institutions make a soft credit inquiry when you open a bank account, this doesn't affect your credit score. On the other hand, some banks make a hard inquiry, similar to when you apply for a loan, according to Dr. Don Taylor of Bankrate.
For the FICO model, a single hard inquiry results in a score reduction of about five points for most people, according to the Fair Isaac Corporation's myFICO website. The VantageScore website lists inquiries as among the least important factors in the VantageScore. Typically, a hard inquiry remains on your credit report for two years.
The minimal effect of opening a new account doesn't justify giving up higher interest rates at a new bank.
If you get overdraft protection when you open a new checking account, or add it to an existing account, the bank may report it to the credit bureaus. If so, the increase in your available credit could have a negative impact on your scores.
If you're concerned, the eCredible website recommends asking your financial institution whether it reports overdraft protection to the credit bureaus.
Closing Accounts and Overdrafts
Closing a savings account has no effect on your credit scores. In fact, when you close a checking or savings account, it normally doesn't appear on your credit report.
If the bank closes your checking account because you've written overdrafts, that is likely to have a negative impact on your scores.
ChexSystems tracks bank account activity and keeps negative information such as bounced checks on file for five years, according to Dr. Taylor. If you don't cover a bounced check, whether or not the account stays open, the debt may be turned over to collections. At that point, ChexSystems reports the problem to the credit bureaus, which lower your scores.
What Really Counts
The most important factors in your credit scores are your payment history, type of credit, length of credit history and amount of credit in use.
How much debt and new credit you have are also factors in your scores, but the balances in your savings and checking accounts and even your total assets don't matter at all.
- Experian: 7 Stubborn Credit Score Myths and Misconceptions Debunked
- Bankrate: How Many FICO Scores Do You Have?
- NOLO: What Is a Vantage Score?
- Fox Business: Can Closed bank Account Lower Credit Score?
- Bankrate: Does Closing Bank Accounts Hurt Credit?
- myFICO: Credit Checks & Inquiries
- VantageScore: What Really Counts
- ecredable: Do Checking Accoutns Affect Your Credit Score?
- myFICO: What's In My FICO Scores?
- Bankrate.com: Bank Account Debt May Appear on Credit Report
- myFICO: Collections -- How to Manage Them and What They Do to Your Credit