Like most things in life, there's a right way and a wrong way to close a credit or bank account. The right way will help make your life easier while the wrong way could cause a lot of headaches and actually damage your credit.
Closing a Checking Account
Follow these simple steps to ensure that everything goes smoothly.
- Open a new checking account so that you'll be able to set up direct deposits and bill payments with the new account before closing the old account.
- Inform employers and automatic bill payment centers about the change.
- Stop using the old account.
- Wait a month for all your transactions to be recorded and all your checks to clear.
- Make sure all your checks have cleared your old account. If any haven't, call the person or company they were made out to and either get them to cash the old check or issue them a check from the new account and have them destroy the old check.
- Once all your checks have cleared the old account go into the bank and close the account. Be prepared to show proper identification. They will give you the balance that remained in the account, which you can deposit into your new checking account.
- Properly destroy and dispose of the checks and ATM cards for the closed account; shredding these materials is a good idea.
Here's what you don't want to do:
- Close an account without having a new one already open to avoid lag time in receiving payments as well as being able to write checks.
- Close an account without making sure all the checks have cleared on it.
- Close an account before paying off any overdrafts as this will put a mark on your credit record which will last five years and you may find it very difficult to open a new account at a bank during that time.
Closing a Credit Card Account
Follow these simple steps to close a credit account:
- Switch all your automatic monthly charges to a different credit card.
- Stop using the credit card.
- Pay the credit card off.
- Call the company to cancel it and request that they report it to credit reporting companies as "closed at the request of cardholder."
- Follow up your phone call with a letter confirming that you are closing your account, include the name of the person you spoke with over the phone and emphasize that it should be reported as "closed at the request of cardholder."
- Wait 30 days and then check your credit report, making sure that you see the reports from all three major reporting companies: Equifax, Transunion and Experian. Check to see if the account is correctly listed as closed at your request.
- If the account is listed and does not say "closed at request of cardholder," send a new letter with a copy of your old letter to the credit card company via certified mail and ask them to correct the mistake.
- Check your credit report again in 30 days and repeat as necessary.
Here's what you don't want to do.
- Forget to transfer all automatic payments to another card.
- Forget to check your credit report and assume that everything went according to plan.
- Close the account if it's going to hurt your credit. One of the things that goes into the calculation of your credit score is the ratio of the amount of credit you've used (the total of all your outstanding balances) to the total amount of credit available. If the first number stays roughly the same but the second number becomes much smaller it could lower your overall credit score.
That said, having too many credit cards, even if the balances are all zero, can weaken your credit. If you're going to pay off and get rid of one credit card, choose one that's close to being maxed out so it won't hurt your overall number ratio.
There are many reasons that people have for closing accounts. You might choose to close a bank account because you are unhappy with that bank's service or you are moving somewhere they don't have a branch. Many people are getting rid of credit cards in an effort to curtail their spending habits and lessen the number of outstanding accounts they have. However, there is another, darker reason to be looking at account closure and that's identity theft.
There are dozens of ways your stolen information can be used. Most people have heard about identity thieves opening credit accounts with the information. However, did you know they can take over existing credit accounts, establish new phone service or make calls that are billed to, and even seem to come from, your cell phone?
Flag Accounts for Fraud
If you've been the victim of identity theft you may need to close some or all of your accounts. Here, the banks and credit card companies are your friends. They don't want to be defrauded either. Ask them to flag your accounts for fraud and then get their help in setting up new ones. For a credit card company this could be as simple as canceling your old card and issuing you a new one.
The same thing may apply to a bank ATM card. Make sure that you put passwords that are not easily guessed in place on all your accounts. Request that anyone who tries to change your account information be able to provide the password.
If a thief has tampered with your bank account or checks, get your bank's assistance in closing the account immediately and opening another one. Make sure you then contact people with legitimate outstanding checks to explain the situation and get them paid from the new account as soon as possible. Stop payment on any checks that may have been stolen. There are a number of companies that perform check verification whom you can contact for help and information. One of the major ones is TeleCheck. Their number to call to report identity theft is 1-800-710-9898.
If a thief has opened new phone service in your name or is making unauthorized calls from your account, contact your service provider immediately to close the account and open a new one. If for some reason you have difficulty removing the fraudulent charges from your account, contact your state's public utility commission or the Federal Communications Commission for help.
Whatever your reason for closing an account, make sure you follow the steps outlined by your bank, credit card company or other financial institution. Make sure you always write down the name of the people who helped you through the process with notes about what they told you. Finally make sure that your credit report reflects accurate information about the transaction.
Questions For Your Attorney
- I closed an account that had an overdraft. How can I fix my credit?
- What should I do if an automatic payment does got to an old credit card?