Dear Liz: I have a roommate who has truly bad credit. He has been turned down from getting a checking account at banks because his mom bounced checks on his account when he was 18 (he is now 31). What is the best way to rehab his credit? He can’t get a secured credit card because he doesn’t have a checking account. Is there a way around this?
Answer: You may not be getting the full story from your roommate. If his mom misused his checking account when he was 18, it shouldn’t still be affecting his ability to establish a bank account. Reports to Chexsystems, the bureau that tells banks about people who have mishandled their bank accounts, typically remain on file for only five years.
Your roommate should first request a free annual report from Chexsystems at http://www.consumerdebit.com and dispute any errors or old information. Even if he’s still listed in Chexsystems, he could get a so-called “second chance” checking account from several major banks, including Wells Fargo, Chase and PNC Bank. Responsible use of those accounts should allow him to graduate to a regular checking account. Then he can start the process of rehabilitating his credit.
In my opinion, the biggest shame is young people unable to turn around their dull financial past. We’ve all made mistakes and unfortunately, in the financial world, we carry long, long reports around with us. I agree with Liz, maybe there is something unsaid between your roommate and you – but more important is the issue at hand.
If there’s any way that your roommate can contact the collection agencies after retrieving his credit report, he may be able to barter with the system in order to reduce his debts at a rate that will allow him to lower his payments and clean up the debts in a more reasonable manner.
If this is a case of fraud, it should be reported immediately. Also, the best places for young borrowers are credit unions. I definitely recommend consulting a professional at your local union.
Thanks Liz! Just to let you know the final result… we walked into Chase on Saturday and got (normal) checking and savings accounts without a problem. It may be because his initial attempt was at a credit union (would that make a difference?). We decided to go for the bananas and apply for a Chase credit card at the same time. Fully expect to get turned down, but now that he has a checking account, he can get a secured credit card and continue the credit repair process.