Although most banks don’t require a hard credit pull to open an account, some do. Closing your account if it’s in bad standing, can definitely cause problems. Find out how to protect your credit score and still enjoy the benefits of a checking account.
Typically, banks do not report activity on checking account to the credit bureaus. So, closing an account that’s in good standing will not affect your credit score. However, if the account was closed by the issuer because it was overdrawn for an extended period of time, it could definitely damage your credit.
Does opening an account affect your credit score?
It all depends on who you bank with and why the account is closed. Most banks don’t do a hard pull on your credit report and won’t ding your credit score. Some banks, such as Chase, BBVA Compass and BB&T have been known to do so and could cause you to lose a few points when opening an account. Most banks use Chex Systems, Telecheck or Early Warning Services (EWS) to view your banking history and evaluate your application.
What to do if you’ve been “blacklisted” by banks
If you’ve had problems with checking or savings accounts in the past, ChexSystems may have alerted other banks about them. This can make it hard to open a new account. Here are three steps you can take if you have been blacklisted by banks.
1. File a dispute
If you believe your application for a bank checking or savings account has been denied in error, retrieve a copy of your Chex Systems report and review it. Dispute any inaccuracies right away by completing this online form.
2. Second-chance banking
Some credit unions and community banks offer second-chance checking accounts to consumers that are looking to rebuild their banking history. These accounts are generally harder to qualify for and come with a monthly maintenance fee.
3. Prepaid debit card
There are several prepaid debit cards that offer many of the same features that consumers with bank accounts receive, including direct deposit, ATM access and online account management.
Still no luck? Consider hiring a credit repair company to help restore your credit score. Use SuperMoney’s review and comparison tool to explore credit repair companies that may be able to assist.
Is it bad for your credit to overdraw your bank account?
Say you forgot to make a deposit and a check bounced. Don’t panic. Instead, make the deposit right away and call the bank to let them know what happened and what you have done to remedy the situation. They may reverse the fee.
But what if you can’t make the deposit or pay the overdraft fees right away? If the account is overdrawn for more than a month, it could be closed and turned over to a collection agency. (Some banks give you a longer period, up to three months, to make things right.) This turnover puts your credit score at risk if you don’t work out an arrangement with the collection agency or pay the amount owed to the bank within 30 days. Otherwise, the account could be reported to the credit bureaus as an unpaid collection item, which will most likely hurt your credit score.
How to prevent damage to your credit
You can try to avoid the negative effect of an overdrawn bank checking or savings account by asking the collection agency to remove the negative mark in exchange for full payment or a pre-negotiated amount. Just be sure to get the pay-to-delete agreement in writing. You can also try chatting with the bank to see whether they’ll remove the balance from collections to soften the blow on your credit score.
Allison Martin is an accomplished finance writer who has written for publications including The Wall Street Journal, MoneyTalksNews, The Simple Dollar, and Credit.com. Her work has been featured on Fox Business, Yahoo! Finance, MSN Money, and ABC News. She enjoys writing about personal development, entrepreneurship, personal finance and is a Certified Financial Education Instructor (CFEI).