The Dangers of Closing a Bank Account

Crystal Mayer  Tue, February 28, 2023

Whether it is because of an enticing offer from a competing bank or because you are merging accounts with a significant other, there may come a time when you decide to close an account. While there is nothing wrong with closing a bank account, you need to be sure that it is done the correct way in order to avoid certain pitfalls.  An open line of communication with your financial institution is imperative to successfully closing an account and preventing any negative impacts on your credit or cash flow. By planning ahead and ensuring that you have a positive balance, you can mitigate the following risks associated with closing your bank account.

Indirect Impact on Credit Score

One of the biggest myths is that closing a bank account will negatively impact your credit score. According to Experian, one of the largest credit reporting agencies in the country, “closing a bank account won’t directly affect your credit.” However, a poorly planned closure could indirectly impact it.

The credit reporting giant explains that financial institutions (banks and credit unions) typically don’t report bank closures to reporting agencies. The closure is not listed on your credit report like a credit card closure would be, but it could cause your score to go down if you have a negative balance in the account before closing.

Having a Negative Balance

Experian notes that a negative balance on a closed bank account could be reported to a collection agency. The collection agency may then report it to credit bureaus (Experian, Equifax and TransUnion). Failure to pay the debt could harm your credit for a substantial amount of time.

To avoid this problem you should do your due diligence before closing any account. You should never intentionally close an account with a negative balance. Furthermore, you want to make sure there are no pending transactions that could take your account into the red.

A report by KTLA 5 suggests individuals “make a list of recurring deposits and withdrawals” before closing an account to ensure it will be resolved in good standing. They also caution people to transfer any withdrawals and settle any balances before moving forward with the closure.

Reporting to ChexSystems

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https://news.yahoo.com/dangers-closing-bank-account-120013417.html