October Financial Matters – Stuart Burns
I remember growing up in the Midwest that it’s not uncommon in the wintertime for cars to skid off the road and end up in a ditch. It seemed practically impossible to get that car back up on the road because of all the snow and ice. But eventually you can get the car out by driving it out yourself or having someone help by pulling the car with another car and chain. Lastly you might need to call roadside assistance or AAA to send out a tow truck. The economic downturn that we experienced in 2008 left many with the same feeling of being in that ditch – jobs were lost, houses lost all equity to leverage, bills started to add up. As a result many in this nation had their credit hurt and left to figure out how to get out of the “financial” ditch. Just like with the car in the ditch there are some things that you can do to drive yourself out or get assistance when necessary. This month we will look at one of the biggest things I hear people say when I am teaching financial classes – How can we start over and rebuild after our credit was hurt and it seems no one will give credit. We will look specifically at what you can do if ChexSystems (Checking/Savings) or Credit Bureaus are reporting derogatory information.
The first thing you may be thinking is “What is check systems” and “How does that affect me”? So we will start by discussing Chexsystems and how you can move forward if you are ever denied checking/savings accounts because of information they provide.
What is Chexsystems?
While most credit reporting agencies broker data about how a consumer handles credit relationships, ChexSystems provides data related to how a consumer has handled deposit accounts at banking institutions.
How does this affect me?
When you apply for a new checking or savings account at most major financial institutions they will use Chexsystems to evaluate if you qualify and you can be denied if there is negative information provided from another financial institution about how you handled your accounts with them.
Here are three solutions for you to consider that will help you overcome being denied for accounts by Chexsystems.
1. Prepaid Debit Cards
Prepaid debit cards won’t build your credit score, since it’s not credit. But it can allow you to do all the normal things like use the card to pay for groceries and most bills with lower fees than cashing services. Some banks, like Chase, have their own prepaid debit cards available. Chase calls this a “liquid account” and it only runs about $10 month last I checked.
Other companies offer pre-paid services that are not banks.
2. Cashing Services
Another option would be to use a cashing service. What they do is cash checks for their customers who cannot cash them on their own. They do not do this for free. In fact, most of the time a pretty heavy fee is involved which varies from company to company. Some cashing services also utilize direct deposit and prepaid debit cards. This option can get kind of expensive, and depending on how much their customers deposit on a monthly basis it could be more costly than what is actually affordable.
3. Second Chance Bank Accounts
This is probably the best option since this will help build a better checking report. Most banks realize that everyone is human and that mistakes happen. Second chance bank accounts are considered high risk, so most banks, not all, will have extra monthly fees attached to them. But this option is one of the best options when you consider prepaid debit cards and cashing services.
Keep in mind that there are some credit unions that do not use Chexsystems. There are also some banks that offer the second chance accounts discussed above – Wells Fargo offers Second Chance Accounts and in Arizona you might try USAA or TCF Bank. You can discuss with representatives from these institutions for requirements.
Now we will shift into discussing things you can do to rebuild your credit score (FICO) if you have been impacted by different events. Keep in mind that if you are responsible for the debt it will not suddenly disappear.
- Credit Repair Companies
I would NEVER recommend using any companies to assist you in repairing your credit.
- There is nothing that they can do for you that you cannot do for yourself
- No need to pay a fee for what you can do for free
- Many make promises that are substantially inaccurate – the biggest being that they can remove derogatory items from your credit. If you are responsible – it will be reported and won’t be removed. It’s that simple.
- What can you do?
You can do all of these things on your own.
- You are entitled to free credit bureaus once a year and can review your own credit
- You can try to negotiate with creditors directly and make settlements
- If there is anything on your credit bureau that is not correct you can dispute the item with the bureau
i. Keep in mind that this means things like accounts that are not yours, etc
ii. Just because you do not like a derogatory is not a reason to dispute
- A credit score is dynamic meaning that you can improve your score and it will include what’s happening now
- Rebuilding might take some time and persistence
- How can I get credit if my FICO is low and I don’t qualify for traditional credit cards?
- One of the easiest ways to start reestablishing your credit is called a “Secured Card”. These are credit cards that you will put money on deposit and then be given a credit card with a lower limit.
- You will make payments like a regular credit cards and it will be reported
- If you get behind or default them the secured portion will be the banks. However, if you pay well then after a period of time the card will “graduate” to a regular credit card and you receive the secured portion back.
- Here are some approaches you might take
Step 1. Resolve any issues you can
- Try to negotiate with creditors – some offer fixed payment plans internally which might lower your payments
- Pay off or pay down any debts that you can
- Review your debts/income and see if paying down will be good or if you need to make decisions on things like a new job, a second job, etc
- Consider a company like CCCS to consolidate debt
Step 2. Rebuilding Credit
a. Use the secured card when you are ready to move forward and start building again
b. If you are rebuilding you should get 1 bureau every quarter (you are entitled to the three major bureaus once a year but don’t have to take them all at once). If you stagger 1 bureau each quarter you can see progress.
Rebuilding is never easy but I want to encourage you all that you can do it and that over time you can get back on the road to financial freedom and good credit. I am going to include the links for the Credit Bureaus and Chexsystems reports for you. We are only touching on some of the best options which may help you and there more so don’t hesitate to research for yourself, but don’t fall for anything that involves you paying money to fix anything for you.
Free credit reports: www.annualcreditreport.com
ChexSystems Report www.consumerdebit.com/consumerinfo/us/en/chexsystems/report/index.htm
Hope to see you all at Father Matters “Pearl Conference 2014 An Evening of Elegance” in October and don’t forget to listen to Vance on “The Father Matters Show” on Faith Talk 1360AM.
For some great financial tools and resources go to: http://learn.bankofamerica.com/money-management/ and http://www.bettermoneyhabits.com or contact Stuart Burns at 602-464-1381 or email me at email@example.com