Closing Bank Accounts and Your Credit Score
Many people don’t know that closing accounts can affect your credit score – but not always in a positive way! Knowing the right way to close an account will help you maintain healthy credit.
The right way
- Before you close any accounts, you should first evaluate how many accounts you have, what they are costing you, what you use them for, and how they may affect your credit score. Closing an account may save you money in annual fees, or reduce the risk of fraud on those accounts, but closing the wrong accounts could actually harm your credit score.
- Check your credit reports online to see your account status before you close accounts to help your credit score. A good mix of credit is important, and too many accounts of the same type may be hurting your score. But remember, accounts that have been open for a long time, and those with high credit limits but low balances, may have a positive impact on your credit score.
- If you still decide to close some accounts to help your credit score, start by looking at inactive accounts that you no longer use. Cards that you don’t use, but charge high annual fees, may be candidates for closure in order to save you money.
- When you close accounts, remember to keep at least one of your older credit accounts open. And consider keeping enough accounts open so your total balances on all open cards is less than 35% of the total credit limits.
- If controlling your spending is a problem, designate one card for regular use and try to pay the balance in-full each month to help your credit score. Keep the other cards in a safe place for emergencies only so that you are not tempted to overspend.
The wrong way
- Try not to close the oldest account on your credit reports. This could shorten your active credit history and damage your score.
- Don’t just throw away old cards and expect your accounts to close automatically. When you close accounts, the correct way is to call or send a letter to the customer service department of the card issuer (not the credit reporting company). You should receive an account closing confirmation letter in 10 days.
- You shouldn't be tempted to cancel several accounts all at once when you close accounts. Gradually paying down and closing accounts may be the best plan if you are unsure about the impact on your credit score, or the amount of debt you need to carry. If you want to cancel multiple credit accounts, space the closures over time to avoid this being viewed negatively by potential creditors.
- Avoid putting all your balances on one card as you close accounts to help your credit score. If your credit balance increases to above 35% of your available limit on that card, it could negatively affect your credit score.
- Keep monitoring your credit reports for updates once the accounts are closed to help your credit score. Wait 30-60 days for the creditor to report the closed account and the credit reporting companies to update records. While the accounts and payment histories will stay on your report for seven or more years, they should be marked as "closed."