Bank Accounts Represent A Huge Credit Score Vulnerability In This Economy

April 13, 2012 by  Filed under: Credit 

Banks love customers that maintain regular and expected account balances, use credit responsibly and keep a close watch on their financial portfolio. That’s what we’re told, but is it still true considering the unstable economic environment in which we are forced to balance our finances? Let’s look at some ways that your bank account or accounts can create problems for you and how banks are forcing consumers into tight financial corners that hurt their customers and benefit them.

Despite recent legislative attempts to rein in bank fees and better regulate how much they charge you to do business with them, banks represent a huge vulnerability to most consumers. More than a few people in this economy use their bank account as an almost free check cashing service. You might think that those kinds of accounts cost banks a huge amount of money, but it is also a way for them to make their own financial health look good. Unlike the presence of too many dead on arrival mortgage loans that hurt financial institutions, banks are judged in a positive way by the number of accounts they host.

Good news for banks does not necessarily mean good news for you. If you have opened a bank account for the sole purpose of using it to cash your paychecks, that can do some damage to your credit score. Credit reporting agencies use a very complicated and (in my opinion) convoluted method of evaluating your bank accounts as far as how they affect your credit score. For example, closing a little used bank account that is older and once represented an important part of your financial portfolio can hurt your credit score. Closing a newer bank account with a low or zero balance that is used solely for cashing paychecks can help your score.

Banks make huge profits from customers that incur account fees for any reason and owe large balances on their credit cards. Financial institutions have a profit windfall in customers that manage to barely keep their heads above water enough to pay the fees they incur and make minimum credit card payments. Bad for consumers, good for the banks which tend to indirectly encourage poor financial decisions by their customers in order to rake in the cash from those fees. Banks are constantly on the lookout for new and creative ways to add more fees and fill their coffers by offering products they know will benefit them more than their customers.

The mistake that many consumers make is that they will pay bank fees on time by letting a car or utility payment lapse in the belief that their relationship with a bank is more important. This is a classic mistake that can cause damage to credit scores. The best way to deal with bank fees is to try your best to get out from under them. In terms of credit scores and financial responsibility, do not use your bank account as a check cashing method or short term loan solution through check overdraft privileges. Pay your car loans and utility bills on time as often as you can. A good relationship with those lenders and utility companies is essential, especially if your financial situation takes a turn for the worse and you need some extended time to pay those bills at some point in the future.

If your financial situation is such that you no longer need several bank accounts, keep and maintain older ones and close newer and non-essential ones. This is especially true if you are currently unemployed or planning to retire sometime soon. Pay off lower balance cards and stop using them so you can concentrate on paying down large balance cards. But be careful! Sometimes closing a card account in good standing that you have had for more than five years can cause a negative impact on your credit score. Never make rash decisions regarding credit cards and NEVER use a home equity loan to pay off card balances.

Banks are like business people that might own a bakery and a weight loss scheme. They encourage you to get fat on their cakes, then offer you a solution to the weight they helped you gain through a weight loss program. Either way, they make money and you lose. So be careful when it comes to becoming too dependent on bank products of any kind. Your credit score and long term financial health will thank you for it.

Bill Edwards is a popular Speaker, Author and Consultant with eclectic interests. He offers practical advice about life decisions, business and career issues. Visit his website for more free articles, free content, free ebooks and valuable information.

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