Closing a savings account may not seem like a big deal in the grand scheme of your finances, but hold your horses. People often wonder if such a move can give their credit score a little kick in the pants, or not. Let’s settle this debate with a sprinkle of humor and a healthy dose of knowledge. Are you ready to discover whether closing that account will send your credit score soaring or plummeting? Buckle up.
Understanding Credit Scores
Factors That Influence Credit Scores
Credit scores can feel like a puzzle, but pieces fit together more easily when one understands the key factors influencing them. Payment history holds the most weight, accounting for about 35% of a score. The second pillar is credit utilization, or how much of your available credit you’re using, ideally, less than 30%. Length of credit history, types of credit in use, and new credit inquiries round out the remaining influences. So, it’s not just your credit cards that count.
Role of Account Types in Credit Scoring
When it comes to account types, credit cards and installment loans receive most of the limelight. Savings accounts, but, are not included in credit score calculations. That’s right. If it carries a” savings” label, it doesn’t count toward your credit score. Still, knowing this helps manage expectations. The closure of a savings account won’t directly impact credit scores, but there’s a catch, which we’ll get into shortly.
What Happens When You Close A Savings Account?
Immediate Effects on Credit Score
Upon closing a savings account, one may feel a sense of relief, especially if it was collecting dust. But, the immediate fallout on credit scores is minimal. Since savings accounts typically do not appear on credit reports, closing them doesn’t alter scores directly. That said, if the closure brings about an overdraft or a failure to pay associated fees, there could be downstream effects. Always read the fine print.
Long-Term Implications of Closing Accounts
While the immediate effects may be non-existent, consider the long-term implications. If someone has multiple accounts and decides to close them, it may lead their financial profile to seem less robust. A bank account’s history can influence lending decisions if someone seeks a loan later, especially if they are a first-time borrower. Banks may look at overall banking behavior, which includes how someone manages their savings.
Alternatives to Closing Your Savings Account
Constructive Ways to Manage Unused Accounts
Before hastily pulling the plug on a savings account, think about alternatives that could enhance the situation. One feasible option is to establish a fee-free threshold. You could also assign a purpose to the account, such as saving for a vacation. Transfers might be small but frequent, and that sparks growth. It’s a great way to keep the account active without very costly, or sweat.
When Is It Appropriate to Close A Savings Account?
Sometimes, closing an account is simply necessary. Consider doing so in these scenarios: constant fees eat away at potential savings, or the account fails to meet personal financial goals. If you find yourself unhappy with customer service or the interest rate provided, say goodbye. Make sure to analyze your financial behavior before making a final decision.
