Does closing a bank account affect your credit score?

When it comes to ending any kind of financial relationship, it’s good to question whether or not it will have an impact on your credit score. Many people ponder this question when they plan to close a bank account, as it’s not always immediately obvious what effect this will have on future creditworthiness.

With this guide, we’re going to answer this question, as well as clarify what does and doesn’t affect your credit score. You’ll then be able to decide if you want to close that account without worrying.

What is a credit score?

A credit score is a measure of how likely a person is to be accepted for a financial product like a credit card or mortgage. It’s calculated based on the information on your credit report, otherwise known as your credit file, which is a comprehensive record of your financial history. You might think that you have a single credit file and a single credit score, but it’s not that simple.

There are three main credit reference agencies (CRAs) in the UK — Experian, Equifax, and TransUnion. They maintain separate credit files on you and make the information available to prospective lenders and landlords so they can assess your creditworthiness and how likely you are to miss payments. Your credit score won’t be directly seen by a lender — it’s just a way of representing the data in your credit report so you can easily understand your overall credit health. Instead, lenders will analyse the data on your credit file to make a decision.

What impacts your credit score?

Some of the data on your credit report comes from publicly available sources such as the Electoral Roll and court records. They also have agreements with various lenders to hold information about credit cards, mortgages, and other credit accounts you’ve had. 

Because the credit reference agencies are independent companies, your credit report and score can differ with each credit reference agency — this is why it’s useful to see your credit report with Checkmyfile as it brings all of your information from Experian, Equifax and TransUnion together.

So which types of accounts are likely to show up on your credit report?

• Mortgages

• Credit Cards

• Loans

• Bank Accounts

• Mobile Phone Contracts

• Store cards

• Home Shopping Accounts

• Debt Collectors

• Car Finance

• Current accounts (with or without overdrafts)

• Utility Bills (depending on how your payments are set up)

• Rent payments (only if the landlord is enrolled in a rent reporting scheme)

Accounts may show on your credit file at each of the credit reference agencies (Experian, Equifax and TransUnion) or just one or two, depending on whether there’s a reciprocal agreement in place between the two parties. 

A reciprocal agreement is when two companies agree to share data with each other.

Now we know what can affect your credit score, let’s look at what doesn’t show on your credit file:

• Council tax

• Savings accounts

• Employment/income

• Student loans

• Old credit history (more than 6 years old)

We can see mentions of two types of bank accounts here, with or without an overdraft. So let’s move on to the main topic of this guide and clarify whether or not bank accounts appear on your credit report and whether closing one would impact your credit score.

Does closing a bank account affect your credit score?

The answer to this question will depend on if the account has been reported to the credit reference agencies or not. 

For most people, a basic bank account is the first relationship you ever have with a financial institution. You may have even got your first bank account when you were just a child. 

As you get older, it’s common to upgrade to a new bank account. Many people open a current account, which is similar to a basic bank account but with a few added extras. An overdraft is often offered with this type of bank account and that could represent your first foray into the world of credit. 

Indeed, when you open a current account, you usually agree to an authorised overdraft limit; a few hundred pounds to begin with. An overdraft is a safety net if, for example, a bill goes out of your account but you don’t have the funds to cover it. Rather than the payment being rejected by your bank, the bill would get paid and your account would have a negative balance. In other words, you’d be overdrawn.

As an overdraft is a type of debt, it’s certain to be reported to the credit reference agencies when your account is overdrawn. If you’re late to pay the amount back, that’ll harm your credit score. 

Closing a current account that has been reported to the credit reference agencies can cause a slight drop in your credit score but this should only be temporary. If the account hasn’t been reported to the credit reference agencies then it won’t impact your credit score.

You can find out which accounts are reported to the CRAs by checking your credit report.

What about closing old credit accounts?

Closing a credit account is likely to impact your credit score — sometimes for the better and sometimes for the worse. Credit accounts include credit cards, loans, mortgages, mobile phone contracts, store cards, car finance, and more.

You’re bound to close a credit account at some point, for example when you finish paying off a loan or close an old credit card account you’re no longer using. You may notice that your credit score goes down, but this isn’t anything to worry about. An open account influences your credit score more than a closed one because prospective lenders care more about your current credit accounts than past ones. 

One thing to consider when you close a credit card account is that your credit utilisation rate may increase, which can have a negative effect on your credit score. If the account you’ve closed was in good standing — i.e. you’d made all your payments on time — closing it may also cause your credit score to drop a little as it represented a positive credit relationship which is no longer active. If you close an account that had negative payment history on it, it can be helpful to show lenders that you have settled the debt.

Despite all this, it’s important to remember that lenders won’t see your credit score; it’s for your eyes only. When they perform a credit check they will be provided the information from your credit file to use in their decision-making process. So you needn’t worry about a small drop in your credit score due to closing a credit account, as lenders will use their own criteria to evaluate your application.

Recap: does closing a bank account affect your credit score?

Your credit score is affected by various types of activity on your credit file, including open and closed credit accounts. You may see a slight drop in your credit score when an account is closed but this should soon remedy itself if you maintain your other credit agreements well.

Know your file

Whatever your number, whatever your goal, the first step towards growing is knowing. With Checkmyfile you get the most detailed credit report on offer. Captured in one convenient spot. Check your file