Do You Believe In Second Chances? Some Banks Do!
We all make mistakes from time to time, and most of us believe that if these were unintentional or just happened once, we should receive forgiveness. Although this is mostly true in personal relationships, when it comes to financial institutions, these are notorious for penalizing clients with less than stellar behavior.
It is all about hedging risks, but some banks are more willing than others to let go some of the minor misbehaviors and give the vote of trust even to those clients who make some mistakes in the past.
However, are they ready to let go?
A few decades ago, people would pay their bills, groceries, and services either in cash or by writing a check. This system is now very outdated and not in line with the hi-tech world around us. The checkbook needed a digital upgrade and a new banking product, more suited for the fast-moving world around us.
Enter the checking accounts, or the transactional accounts, the products with the highest liquidity and usually no limits regarding the number of transactions. The great thing about these is that with a minimal set-up you can get out of your mind the daily problems like paying your bills.
Most checking accounts come with a debit card attached, so you can forget about the necessity to carry cash around. Some also generate a small interest, but this comes at the cost of higher management fees.
The downside of using a checking account for auto-payments is that you have to be very organized and coordinate your income and payments so that you are never out of money. If you have no funds in your account and a scheduled payment arrives, you end up with a negative balance or over drafting.
Should this situation be something worth thinking about from the bank’s perspective?
In the financial establishments, numbers make the world go round, so it’s no wonder that credit scores are required everywhere. These are weighted averages trying to show how trustworthy is a potential client. Should the bank grant them a personal loan or a mortgage?
The concept of scoring clients became so popular it was extended to checking accounts, a product which aims to simplify cash transactions. Called the ChexSystems, this is a blacklist for the clients who had problems with managing their cash-flows in the past, resulting in multiple non-sufficient funds situations or excessive overdraft.
The ChexSystems scans for some issues like too many overdrafts, nonpayment, insufficient funds, fraud tentative, violating banking rules, and more. The aim is to help banks identify those clients that don’t have the necessary financial discipline to manage a checking account.
This scanning makes sense since checking accounts are entry-level products that don’t generate any revenue for the bank. In fact, if the customer creates overdrafts, it causes the bank a loss.
The Bottom Line
If you haven’t been careful in the past, your name might be already part of the ChexSystems, but that is not the end of the world. When would you need to use a second chance bank you should always look for reputable institutions. Not all follow the scoring system. However, once you get a new checking account, you should be far more careful with the decisions you make. Create a calendar which focuses on your cash flows and always ensure there is some money in the bank to prevent payment denials and frequent overdrafts. Also, you should not worry about your FICO score if your ChexScore is low since these are not connected.
Are you ready for a fresh beginning?