Rebuilding Credit by Opening Deposit Accounts

One good way to begin rebuilding credit that has taken a hit (perhaps from bankruptcy, foreclosure, or out-of-control debt that you are finally paying down) is to open deposit accounts with banks or other financial institutions. Read on to learn why this can help your credit, and how to get an account if your credit history is less than stellar.

(For more on why rebuilding credit without getting new credit is a good idea, and for other ways to do this, visit our Rebuilding & Improving Credit topic.)

Why Creditors Like to See Bank and Other Deposit Accounts

Creditors look for bank accounts as a sign of ­stability. Quite frankly, they also look for bank accounts to make sure you’ll be able to pay your bills.

A savings or money market account, too, will improve your standing with creditors. Even if you never deposit additional money into the account, creditors assume that people who have savings or money market accounts use them. Having an ­account reassures creditors of two things: You are making an effort to build up savings, and, if you don’t pay your bill and the creditor must sue you to collect, it has a source from which to collect its judgment. And having an account will also help you put aside money for expenses that come irregularly during the year.

Where to Look for Checking, Savings, and Money Market Accounts

Credit unions and local community banks often have lower checking or saving account fees than do national banks. If you find a credit union for your deposit account, it may also be a good place to start getting credit when you are ready for that.

Just because you’ve had poor credit history, you shouldn’t be denied a bank account. Shop around and compare fees, such as check writing fees, ATM fees, monthly service charges, the minimum balance required to waive the monthly charge, interest rates on savings, and the like.

Comparison Shop

Ask for a list of all types of account charges before you agree to open one. Compare the fees each bank charges and choose one that works with the way you’ll use your account. If you use ATMs a lot, for example, look for a bank that does not charge for using its own ATMs and reimburses you for ATM charges from other banks. Also, do not authorize overdrafts or overdraft protection, because it can cause you to pay high fees for overdrafts or for the overdraft protection service.

If You Can't Get an Account Because of Previous Bad Checks

You might be denied an account, however, if you have a bad check writing history. Check verification companies keep track of banks’ experiences with their customers, much as credit reporting agencies do for creditors. Most banks will check your check writing history with a check verification company before they will open an account for you.

Here's what to do if you are denied a bank account because of information provided by a check verification company:

• Get the contact information for the check verification company from the bank.
• Contact the check verification company to get a copy of your credit report.
• If you can’t resolve the problem informally, you can dispute incomplete or inaccurate infor­mation in the company’s files just as you can with a credit reporting agency by sending a dispute letter.  

Don’t Bounce Checks

If you open a checking account, be very careful not to bounce checks. A federal law called “Check 21” makes it harder to avoid bouncing checks. This law allows banks to process electronic images of checks instead of the paper origi­nals. One result is that checks clear much faster than most of us are used to. Consumer representatives urge consumers not to write a check unless the funds are already in the account to cover it.

Although checking account information is not included in credit reports prepared by the three nationwide credit reporting agencies, if you bounce a check to a creditor, it most likely will report a late or missed payment to a credit reporting agency, jeopardizing your hard work to repair your credit. A history of bounced checks also may make it harder to open bank accounts in the future.

To learn more about credit reports and rebuilding credit, visit our Credit Repair area.

This is an excerpt from Credit Repair, by Margaret Reiter and Robin Leonard (Nolo).