Will Closing a Bank Account Affect My Credit Score?

Will Closing a Bank Account Affect My Credit Score?

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated October 14, 2020

Your credit score is a crucial piece of information that helps determine the overall health of your finances. It’s also a critical piece of the puzzle when it comes to applying – and getting approved – for a loan, whether it’s a mortgage, auto loan, personal loan, or even a credit card.

But what can affect your credit score? In particular, can closing a bank account hurt your credit score?

What Will Happen to Your Credit Score After Closing a Bank Account?

There are so many factors that come into play that can affect your credit score, but is closing a bank account one of them?

You may have heard that closing old credit can be harmful to your credit score – or at least not do anything to improve it – because a long credit history (particularly a good, healthy one) is helpful for lenders to assess your risk level as a potential borrower. By closing out an old credit account, you could be shooting yourself in the foot as far as keeping your credit score healthy is concerned.

How to get a bank account for free in Canada. Click here.

That said, closing a bank account is different and doesn’t have any effect on your credit score. That is, of course, unless you owe the bank money and your account is actually in the red. Any time you owe money that is late in payment, your credit score will suffer.

However, if your bank account is in good standing before you close it out, there’s no reason why it should have a negative impact on your credit score.

Before you decide to close out a bank account, make sure that it is not in arrears and you don’t owe the bank or credit union anything. If you do, it’s important that you clear these issues up beforehand. Otherwise, closing a bank account in good standing should have no effect on your credit score.

What Factors Can Harm Your Credit Score?

As mentioned earlier, a lot of factors come into play when it comes to credit scores and whether or not they will be improved or shot down.

Here are some things that can have an impact on your credit score:

Closing an old credit account – We’ve already briefly touched on the fact that closing out an old credit account can be bad for your credit score. Credit accounts with a long history actually have a healthy effect on your credit score, which is why cancelling an old credit card account can be a bad thing for your score. The same thing can happen if you close out old revolving credit accounts, such as lines of credit. Even if you are no longer using a certain credit account, leave it open for your the sake of your credit score.

Missing payments – Perhaps the most detrimental thing for a credit score is missed payments or even late payments. If you consistently miss debt payments or are late paying them in full, your credit score will certainly suffer. In fact, your payment history makes up 35% of your credit score, which is a hefty chunk. You can see how missing payments would make a big dent in your score.

While one missed payment might not do much to your score, a string of them certainly will. That’s why it’s so important to make sure that all of your debt payments are made on time and in full every month.

Increased debt load – If you decide to take out another loan or two, your overall debt load will increase, which has a negative impact on credit scores. More specifically, higher debt loads on credit cards are even worse, especially if you do not pay them off right away.

Credit utilization – Every credit card issuer provides their credit card holders with a specific credit limit which they are allowed to spend up to, but not over. The closer you get to that credit limit, the worse off your credit score will be. Just because you have been approved to spend up to a certain amount on your credit card does not mean that you should necessarily spend that amount every month.

Approaching your credit limit is not good for your credit score. Instead, it is recommended that you spend no more than 30% of your credit limit every month, as your credit utilization can have a significant impact on your credit score. Keep your credit card balances as low as possible.

Too many loans taken out in a short period of time – Not only can an increase in debt load be bad for your credit score by taking out a new loan, the number of loans applied for can also be detrimental to your score. Creditors will pull your credit report in order to see your credit history and accurately assess what type of borrower you would make. Such inquiries can put a ding in your credit score, and a sudden increase in credit inquiries over a short period of time will drop your score, even if it’s just temporary.

Closing credit cards with remaining balances – We’ve already touched on this, but it’s worth repeating. Closing out a credit card that still has a balance on it is not good for your credit score. Since part of your credit score is measured on the overall amount of credit that has been extended to you, cancelling out a card also removes a lot of credit that was granted to you, which can be harmful to your score.

Losing your job – If you lose your job, you won’t have any income coming in, which can have a slight impact on your credit score. Credit bureaus will be made privy to the fact that your income has been effectively reduced, which will likely have an impact on your ability to continue making payments on your current debt.

Liens – If there are any liens on your home or vehicle, your credit score will likely be impacted accordingly. These liens will be noted on your credit report, which will have an impact on your score.

Errors on your credit report – Any mistakes on your credit report can pull down your credit score, despite it being unfair. It’s your responsibility to pull your credit report every year to look it over and identify any potential mistakes. If you spot any, have them investigated and rectified right away.

The top 5 errors that appear on credit reports. Read here.

Final Thoughts

Although closing a bank account won’t necessarily hurt your credit score, there are many other factors that will. Be sure to understand how your credit score can be impacted by your actions and habits and be diligent about keeping your credit score in good shape. Your score can mean the difference between getting approved for a loan or not, so make sure it stays healthy for the long haul.

Rating of 4/5 based on 7 votes.

Lisa has been working as a writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same. She's used a variety of financial tools over the years and is currently growing her money with Wealthsimple, while stashing some capital in a liquid high-interest savings account so that she always has a financial cushion to fall back on. She's also been avidly using her Aeroplan TD credit card to collect as many Aeroplan points as possible to put towards her travels!

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