How might closing a bank account + 3 credit card accounts hurt/benefit my credit or financial positioning?

[swampcat]

Let’s talk about credit scores and money management for a moment… I have my money in 3 banks. 1st acct. opened for me at birth 45’ish yrs ago, 2nd opened in 1997, 3rd joint acct w/ partner in 2014. I also have 6 credit cards with no outstanding balances (pay down to $0 every month). This is a lot of accounts to manage. I’d like to close one bank account and 3 credit cards (RE the cards I’m closing 1 is amongst my oldest, 2 aren’t).

Will closing these bank + credit card accounts hurt my credit in any way?

Chat GPT says, “Closing a bank account generally doesn't impact your credit score. However, closing credit cards might affect your credit score. If the cards you're considering closing are among your oldest accounts, it could potentially reduce the average age of your credit history, impacting your score. Additionally, closing credit cards may affect your credit utilization ratio. If the total credit limit decreases while your balances remain the same, it could increase your utilization, potentially impacting your score negatively. Evaluate the potential consequences based on your individual credit profile before deciding to close any accounts.”

Thoughts? Agree/disagree with Chat GPT? Experiences to share?I’m all ears

 

[flint1952]

@swampcat Available credit is a plus for score, longest line of credit is a plus, I believe low debt to available balance ratio is a plus, all of these could be negatively impacted by closing a card.

As for a bank account, unaware of any reason it would hurt score.

 

[swampcat]

@flint1952 Appreciate your succinct explanation of why certain actions would/wouldn’t impact our financial situation

It’s wild to me that banking history is less important than credit card history, right!?!

 

[jpp]

@swampcat It's important but not to your credit score. ChexSystems is the third-party agency that keeps a history of you bank accounts and current risk level that banks will look at before approving a new checking or savings account. You can use ChatGPT as well to see what score factors go into a ChexSystems score.

 

[swampcat]

@jpp I’ve not heard of ChexSystems, thanks for this nugget!

 

[resjudicata]

@jpp Very few banks use that

 

[swampcat]

@resjudicata What are the primary third party credit verification processes/companies that banks use?

 

[resjudicata]

@swampcat All I know is that my bank is not using any. I had asked them a while ago when I first heard of ChexSystem.

In the end, any bank can let you open any kind of checking account. They will ask if you have frequent direct deposit of a paycheck, and how much that might be, depending on that they determine what your value is for them. Some banks offer you "no fees" if your direct deposit is the minimum of a certain amount, some banks will offer you free checks if you reach a certain amount if direct deposits, some will even pay you interest on a regular checking account.

 

[cynandherprodigal]

@swampcat From what I've read, this is correct.

 

[swampcat]

@cynandherprodigal Thanks for affirming that I’m on the right track

 

[precurefan2002]

@swampcat you don’t need to close the credits cards if they have no annual fee. Just leave them in there and don’t use them. Just having the history and the available credit, helps your credit score

 

[orthodox62]

@swampcat How old are your credit accounts? Are they with the same institution? You could just rollover your line of credit to your oldest one if they are.

 

[orthodox62]

@swampcat For example, two of the cards are with Chase, then you can roll over the limit on one card to the other. Would not recommend closing out your oldest card.

 

[swampcat]

@orthodox62 I see! Thanks for the clarification.

 

[leticia1995]

@swampcat 45ish years of never missing a payment helps too. I expect the impact of closing accounts will be slightly negative but not be significant. For decades I carried two cards, so I have a spare in case of identity theft (it appears the hookers in Dutch Harbor Alaska accept hot credit cards). I was given a gift of a free membership at a big-box store, that came with additional bonuses if I got a credit card. Adding it dropped my credit score by a point or so. I put my health insurance payments on that card, because it gave me a discount. But a year later my credit score was back up a couple points. During that year I never found the desire to walk in the store, and I didn't care to spend for the renewal, so I dropped the card. My credit score dropped a couple points.

So it seems to me that change is bad, for little while, while they figure out if your going to go crazy. Maybe soon I'll be heading up to Dutch Harbor...

 

[swampcat]

@leticia1995 I proudly have never missed a payment in 45 years

Thanks for sharing your story. Sounds like based on your story, and that of others, is that if I don’t close my oldest card, the impact of closing cards and bank accounts should be minimal.

 

[lisam123]

@swampcat Closing a bank account won't impact your credit. Closing a credit card will definitely drop your score. Especially if it's among your oldest. Why?

Just look at credit score metrics:

payment history (35%),
amounts owed (30%),
length of credit history (15%),
new credit (10%) and
credit mix (10%)

Clearly, length of credit history will be affected by closing your oldest card. Recoverable, but it'll take time

Plus, even though you have zero balance (that's great, btw), by closing even one card you've also lowered your total available credit. While not directly a metric, it will influence the percentage of credit utilization when you do happen to have a balance.

Ex.
$100k available credit, $0 balance = 0% utilization (great! At $0 balance, it wouldn't matter even if you only had $500 available credit)

But,

$100k available credit, $10k balance = 10% utilization (this level is considered in the optimal range, but less is always better)

$50k available credit, $10k balance = 20% utilization
(Not good, credit score will drop quite a bit)

I've used this info to boost my score in a relatively short period of time by requesting credit limit increases as soon as I was able (1-2 yrs after opening the card), and accepting limit increases whenever it was offered to me. Plus, keeping my oldest cards, even if I don't really need them or find them particularly useful.

 

[swampcat]

@lisam123 Awesome breakdown of just how credit scores are determined, and I did not know 10% of credit utilization was optimal — all so good to know! Thank you for clearly breaking down this multifaceted equation, it really helps me make this decision

 

[trey3200]

@lisam123 Closing a credit card doesn’t affect your score much unless it was a huge credit line that will cause your utilization to jump up. Closed accounts continue to age for 10yrs. They don’t just disappear from your report. I recently closed 15 accounts on my report. My score dropped 4 points.

 

[goneguy]

@swampcat Closed bank account only affects credit score if they close it because you owe them money