We will specifically discuss what a 570 credit score means in the UAE and whether it is sufficient to get new credit in the UAE.
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There can be a multitude of reasons for closing a bank account. You are not satisfied with the overall service, there are way too many additional expenses that you need to bear, or you have found a more compelling offer from some other bank. Closing a bank account is justified in any of these cases or for other reasons. However, at the same time, there can also be certain repercussions, primarily if you have any ongoing loans with that particular bank.
In such a scenario, it is only fair to ask this question, 'does closing a bank account affect credit score?' Well, to get a detailed overview, read on.
Credit unions and financial institutions do not report any information related to an individual's bank account to credit agencies. Further, instances of account closures are also not listed in an individual's credit report, irrespective of whether the account holder or the bank chooses to close the account.
A person's credit score is solely based on the data collected from the person's credit report. This credit score reflects an individual's creditworthiness and the capability to manage debt payments.
Though closing the bank account will not impact a person's credit score directly, the credit score may get affected in case the person's bank account had a negative balance at the time of closure.
In such a case, if an individual does not pay off the owed amount within the given time, the financial institution might send the report to the collection agency. Following this, the collection agency may report the issue to the credit bureaus. This can have a negative effect on the credit score of a person significantly.
What is even worse is that this default information continues to stay on the person's credit report for as long as seven years, irrespective of the fact whether that person pays off the debt or not.
Additionally, an overdraft account which has been closed might get reported to the ChexSystem that manages an individual's banking reports. In other words, banking reports are like credit reports but with information regarding a person's past and current banking activities.
Hence, whether it is the bank or you who chooses to close an account with a negative balance, it can adversely affect your chances of getting approval for other traditional accounts in the long run. In such a case, an individual can go for the option of a prepaid debit card or a second-chance bank account.
In case you are planning to close your existing bank account and do not want it to affect your credit score, the first thing you should ensure is to clear off the negative balance, if any. Further, if you cannot afford to repay the amount, talk with the financial institution and request them to make the necessary arrangements for the repayment.
You should not think that the negative balance will not be reported just because you have moved to another financial institution. You will have to take necessary actions to repay the outstanding checks, auto drafts, or pending transactions even after the bank account has been closed. In such a case, the former financial institution will notify the person via mail regarding the outstanding balance.
Though closing the bank account will not directly affect your credit score, you should monitor your credit at regular intervals to ensure that you have good financial health. You can consider checking your credit reports and score to understand how well you are managing your debts. Further, credit monitoring services offered by several financial institutions suggest ways to improve your credit score. The higher the credit score, the more the chances of getting smooth approvals for any line of credit.
Now that you know how closing a bank account affects the credit score, take the necessary actions to avoid the adverse effects of the same. A decent credit score opens many doors in your life, such as credit approvals for car loans, rental agreements, property loans and even various job opportunities. Hence, to ensure that you obtain the funds in times of any financial emergency, make sure to keep track of your credit score and manage your financial habits accordingly.
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