Here's What Happens to Your Credit Score When You Close a Bank Account

It's worth making an effort to build and maintain good credit. The higher your credit score, the more likely you are to qualify for a loan when you need one.

Now, you may be aware that certain actions are apt to result in credit score damage. Being late with a credit card payment or blowing off a mortgage payment could cause your credit score to take a pretty big hit. And you may be surprised to learn that the simple act of closing a long-standing credit card account or paying off a long-term loan, like a mortgage, could cause your credit score to drop, too.

But what about closing a bank account? Will your credit score sustain damage if you decide to move your money out of the bank, or from one bank to another?

Closing a bank account shouldn't hurt your credit

You may decide to close a bank account if you're tired of being charged high fees, or if there's another aspect of your account that isn't working for you. You may also decide to move your money from one bank to another to snag a higher interest rate on your savings account.

The good news from a credit score perspective is that closing a bank account shouldn't cause any damage. That's because it's just these five factors that go into calculating your FICO® Score:

• Your payment history
• Your credit utilization, which is the amounts owed on revolving lines of credit
• The length of your credit history
• Your credit mix (loans, credit cards, etc.)
• Any new credit accounts you've opened

You'll notice that the length of your credit history plays a role in your credit score, so closing a credit card you've had for a long time could cause your credit score to drop. Similarly, paying off a loan you've had for a long time could cause a temporary dip in your credit score.

You'd think the opposite would happen, because hey, look at you, you've paid off a loan! But unfortunately, it's common for credit scores to drop when a long-term loan is paid off, since having that loan disappear is likely to shorten the average length of your open credit accounts. It could also change your credit mix.

But a bank account is not the same thing as a credit account. So closing a bank account should not affect the length of your credit history, thereby helping you avoid credit score damage.

How to keep your credit score in good shape

The good news is that you can close your bank account and not have to worry about any resulting credit score damage. But other seemingly innocent moves you make, like opening a few new credit cards in short order, could cause your score to drop.

If you have good credit at present and want things to stay that way, it's important to focus on your payment history and credit utilization. Those factors have more of an influence than the others above on your credit score. Paying all bills on time and keeping your total credit card balances to 30% of your credit limit or less could help you maintain solid credit.

Also, while it's OK to close a bank account you've had for a long time, think twice before closing out a long-standing credit card account. It's one thing to pay off a loan and have it removed from your open credit accounts. It's not as if you can keep making payments on a balance that's been whittled down to $0. But if you have credit cards that don't charge an annual fee, hang onto them if they've been open for years, so your credit score doesn't drop due to a closed account.