How "Zombie" Bank Accounts Can Ruin Your Credit

Even after you close your bank account, it can ruin your credit. Accounts at certain banks have a way of coming back to life and dinging you with overdraft fees, late charges, and penalties. The resulting negative balances get turned over to collection agencies, ruining your credit before you even know what’s hit you. Known as “zombie” bank accounts, these monster accounts can reopen long after you think they’re closed and easily take on a life of their own.

The Anatomy of a Zombie Bank Account

Zombie bank accounts are made possible by bank policies that reserve the right to reopen a closed account for new incoming transactions. You may close the account, but an automatic debit or direct deposit arrangement could cause the account to reopen.

Once it springs back to life, the account will stay open until you manually close it again. It’s not unusual for a zombie account to be open for months or even years before you notice – after all, you think it’s closed! What generally happens is that you notice a hit on your credit report that can be connected back to unpaid account maintenance fees or overdraft fees on an account you thought was dead and gone.

Complaining doesn’t necessarily make the problem go away. Banks point to account closure policies and your signature on the closed account documents as a sign that you read and understood their policies about reopening closed accounts without notice to you. This makes it your fault, not theirs.

Even worse? Many bank web sites give confusing or unclear information about closed accounts. Poorly trained account representatives can point you in the wrong direction. In the meantime, you’re stuck with a mess on your credit report – a mess that never would have showed up if your zombie account had stayed in the grave.

Naturally, consumer groups have long complained about zombie account policies at banks. In the August issue of Consumer Reports, the magazine brought the problem up again, highlighting issues at Bank of America and Chase, two of the nation’s largest banks. Yet even small and regional banks can have zombie account policies on the books, hurting your bottom line in ways you never see coming.

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Closing the Zombie Account Loophole

To avoid nasty surprises, you need to take a few extra steps when closing any bank account. After all, if you hate your bank now and think they’re making your life miserable, how much worse do you think it will be in a few years when you’re not even a current customer and trying to get them to fix something for you? Better smart than sorry.

First, make a list of all the automatic payments and deposit relationships associated with your account. Put them on hold or move them to your new account before closing your old account to dramatically reduce the chances your account will be reopened by activity on your end.

Next, make sure you’re clear on the bank’s zombie account policy. Get it in writing the day you close your account – online information on bank websites can be out-of-date and verbal assurances that your account won’t be reopened are worthless. This will cut out wiggle room for the bank and make sure there’s nothing funny going on with your closure.

Finally, set up a reminder to yourself to check and make sure the account is closed each quarter of the first year after you close it. This will help you catch your zombie account almost immediately if it comes back to life due to any newly processed deposits or withdrawals associated with annual maintenance arrangements or subscriptions that you missed when you first closed the account. Since many zombie accounts are reborn within the first year after they’re closed, the quarterly checks will help cut your odds of a nasty surprise later.

By taking these precautions, you can protect your credit and your sanity when you close down a bank account. Though zombie bank account policies are under fire, they’re still on the books at banks of all sizes around the country. Until they’re finally put to rest, don’t let a zombie ruin your life.