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Ask Money

Go ahead, switch

Chris Farrell Nov 3, 2011

Question: Someone on our show once said that closing your account would lower your credit rating. With the Occupy movement asking people to move their money what is your suggestion. I’ve been thinking that opening a new account and slowing, over time, convert everything would make more sense. I’m sure there are a LOT of people totally fed up with the rip off banks and considering doing it. Thanks. Armand, San Francisco, CA

Answer: Go ahead and change your bank accounts. There’s no reason to do business with a financial institution you don’t like.

Remember, people have been changing banks for years, say, when they moved to another part of the country or when they got married. The same thing goes with credit cards. People have transferred from one card to another to take advantage of an airplane miles plan, get a lower interest rate or eliminate an annual fee.

Fact is, for many people with simple banking needs it’s easier than it used to be since most of the switching is done online.

That said, your idea of going slow is a good one. First of all, you want to give yourself time to research the bank, credit union or community development bank you want to do business with. You want to take into account how you use bank services to make sure you come out ahead financially with the new institution.

You also want to go slow because the transfer could take time. For instance, you might have set up a series of automatic payments over the years. You’ll want to stop the automatic bill pay before transferring. Bankrate.com has a nice graphic on switching accounts and a tutorial here.

When it comes to changing credit cards I wouldn’t worry about your credit score. When you actually close a credit card account it can impact your score for the worse because the action lowers your ratio of credit card debt to credit limits. The effect is transitory and, more importantly, your ratio may not change at all since you’re transfering into another credit card.

There is one major exception to this point of view: I wouldn’t move your banking and credit card business if you’re in the middle of a major loan transaction, such as buying a home, refinancing a mortgage or taking out an auto loan. These are the loans where a good credit score can really make a difference. Since your score could take a ding–and that’s all it would be–I would wait until the deal is done.

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