As a GOAL Coach and Housing Counselor, I often ask prospective clients about their banking habits. How do they pay their bills? Do they have checking or savings accounts? The answers vary. Many people pay their bills online or use mobile phones. Some pay by check, cash, pre-paid cards, money orders, and even debit cards to access their Social Security or other benefits.
I ask those without bank accounts if using cash, cards, or money orders works for them. While some say yes, there are others who have had bad experiences. One client was being evicted for non-payment of rent. She states she made all payments in full, although late. The landlord took her to court and won because she did not have proof of payment. Another client had a collection on her credit report that she states she paid but did not have proof of payment. She tried to dispute the error but it was found in favor of the creditor. She had to pay it again in order to get it off her credit report. If these individuals had paid by check they would’ve had proof of payment.
When asked, people give the following common reasons for not having traditional checking or savings accounts:
- Nobody likes bank fees. While most banks will charge fees for their services, fees vary. Shop around. Try your local banks or credit unions instead of the large national banks. Ask questions if you do not understand the fees.
- Many banks are declining business because the account holder has a record of financial mistakes, such as bounced checks or overdrafts. Unfortunately, banks have mandates regarding opening accounts. You may need to fix the issue by paying off what you owe. Or check with your local banks and/or credit unions to see if they are forgiving and will allow you to open an account.
- A bad customer service experience can cause you to either consider switching banks or giving up on banking entirely. For the unbanked population, bad customer service can drive them to quit entirely. A better solution could be to choose a different bank that offers better service. There are many banks and credit unions to choose from.
- A lack of understanding about how the system works is another concern. Opening a checking account can be an intimidating process for those who have been unsuccessful in the past. To help, many banks have trainings to teach customers basic money management skills. This helps to ensure against overdrafts and account closures. Also, there are online education programs such as FDIC Money Smart (https://www.fdic.gov/consumers/consumer/moneysmart/) and Find Financial Freedom (www.findfinancialfreedom.org), which provide individuals with the skills and confidence it takes to manage money.
- All of these things lead to a lack of trust with big banks. Unfortunately, choosing not to “bank” will have negative side effects that you may not realize. While your bank accounts do not reflect your credit score, many lenders and creditors will ask if you have a checking or savings account. Having open and positive accounts will reflect favorably on your financial skills. A positive checking account shows you know how to manage your money properly. A positive savings account might show a lender or creditor that you are saving for the future.
Many of my clients prefer to use their Housing Choice Voucher for homeownership and one of the HUD requirements is that individuals must have a bank account opened for at least six months. Ultimately, if you have similar long or short term savings goals, keep in mind the importance of building up a banking history and consider opening a checking or savings account today.
Image courtesy of Stock Free Images