Why isn’t my checking account on my credit reports?

money bagWhen you open a checking account, it’s very possible that the financial institution will reviews your credit report. I just opened an account with a local credit union here in Georgia and they pulled my credit report before opening the account. They want to make sure you are an acceptable risk. But despite the up front credit check, checking and savings accounts are not reported to the consumer credit reporting agencies.  Here’s why…

When you open a checking account you are not extended credit like if it was a loan. The exception…if you obtain a line of credit as overdraft protection. Those overdraft lines can be reported to the credit bureaus and unused installment loans.  Mine certainly is. Other banking services that are not reported to the credit bureaus are traditional debit cards, prepaid debit cards, money market accounts, and safety deposit box rental. Here’s a good rule of thumb… Not credit = not credit reported.

Collections resulting from bounced checks CAN end up on credit reports

There are two ways to avoid paying fees for bounced checks: 1. you can open up a line of credit with the financial institution, which is a loan for the amount of the bounced check. 2.  you can have the funds transferred from one of your accounts such as savings, credit card or another checking account.  Since the line of credit is considered a loan, it can be reported to the credit bureaus. The line item might even be identified as an overdraft line of credit.

If you have overdrawn your checking account and don’t have any overdraft protection, you are charged fees by the financial institution. If you don’t pay the overdraft fees, the financial institution may turn your account over to a collection agency for payment.  The collection agency usually reports the collection on your credit report, which gives them leverage to collect the debt. Collections are considered negative and remain on your credit report for seven years, from the time the account went into default. Paying the collection account will not cause it to be removed from your credit reports.

Also, read >  What is a Credit Inquiry?

Even though your checking account is not reported to the credit bureaus, except for unpaid bounced checks reported by collection agencies, you might end up in ChexSystems database. Many companies obtain check verification information from that company.  Records of bad checks can remain in their database for five years. Habitually bouncing checks can have a negative impact on obtaining another checking account, along with negative information being reported on your credit report.

JRU on 60 Mins SetCredit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.