How to safely close a savings account

Closing a savings account can have a negative impact on your credit if the account has a negative balance at the time of closing. Credit bureaus do not consider savings or checking account activity, including account closures, when compiling your credit score. But if you don’t repay the negative balance on the closed account, the bank may eventually turn it over to collection agencies. This will likely be reported to credit bureaus, which can result in a significant and permanent reduction in your credit score. You can avoid problems by properly closing your savings account and making sure there are no outstanding balances.

Before making any major move that could affect your personal finances, consult a financial advisor.

Basics of Savings Account Closure

Having a savings account is key to a person’s financial health. However, there may be times when you want to close your savings account. For example, you can find another savings account with lower fees or higher interest. If you have multiple savings accounts, closing all but one will help you keep track of your finances.

Maintaining a good credit score is also important to a sound financial position. Your credit score determines whether you can get a loan to buy a car or a home, and how much it costs. Your credit score is taken into account when applying for a job, insurance policy, or even a home lease.In most cases, closing your savings account will not affect your credit score at all. Banks do not report account activity to credit bureaus. However, the bank reports closed accounts with outstanding balances to his ChexSystems.

What is ChexSystems?

ChexSystems is a service that maintains files on individual consumer banking activities such as account openings and closings, credit checks, bounce checks and outstanding fees. Banks, credit unions and credit card issuers look to ChexSystems for information about new account applicants. Negative entries in the CexSystems file, such as a history of abusing overdraft protection or opening and closing too many accounts too quickly, can make it difficult to open new accounts.

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ChexSystems also reports some account-related activity to credit bureaus. Specifically, when you close an account with an outstanding balance, this information may be recorded in your credit file courtesy of his ChexSystems. Still, your credit score won’t feel it, at least not yet.

Causes and Consequences of Negative Balances

There are several ways a savings account can have a negative balance. Fees may apply for ATM usage, insufficient funds, or wire transfers. These fees are usually paid out of the funds in your account. However, closing your account before the fees are paid may result in a closed account with an outstanding negative balance.

This is not a credit score issue as long as you don’t pay the bank and turn over the account to a collection agency. Presumably, this will be recorded as a negative in your payment history when the collection agency reports it to the credit bureau. This is the main factor that affects your credit score. Also, the collection account will remain on the report and the score he will reduce for 7 years.

Securely close your savings account

You can avoid such situations by closing your account wisely. Before closing your savings account, open a new account first, or at least make sure you have one. Cancel automatic transfers to or from your account. Wait for recent transfers to clear. Check with your bank to make sure you don’t have a negative balance. Consider leaving funds in your account for a few weeks to cover late-arriving fees. After closing your account, check back later to make sure your account is in good standing.

Conclusion

Closing a savings account with an outstanding negative balance and not repaying your debts with the bank can do some damage to your credit score. Unpaid negative balances may be turned over to collection agencies and reported to credit bureaus. Each time your account is collected, it will appear as a hit in your payment history. This is the most important factor considered when calculating your credit score.

saving tips

• Knowing how much to keep in a liquid savings account can be difficult. There are many factors to consider, from your monthly expenses to your potential income. You can also work with a financial advisor who can help you plan properly and develop a plan to get you there. SmartAsset’s free tool matches you with up to three financial advisors serving your area. You can interview Advisor Matching for free to determine which advisor is right for you. If you’re ready to find an advisor who can help you reach your financial goals, get started now.

• If you’re looking for a new savings account, SmartAsset’s review of the best savings accounts is a good place to start. This review collects key data points such as annual yields, fees and minimum starting balances to identify financial institutions with the best overall service.

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The post Can Closing Your Savings Account Affect Your Credit Score? First appeared on the SmartAsset blog.