Credit Loan > Checking and Savings Accounts > A Checking Account as the First Step to Good Credit

Establishing Credit by Opening a Bank Account

One of the ironies of credit is that to have it, you need to spend money. However, spending willy nilly will turn a credit report with no information into one with only bad information. It is crucial, especially when starting out on the financial road for the first time, to be careful about how one uses money, so that in the future, one has access to things such as mortgage loans. One of the best ways for a young person starting out in the world of credit is to start a checking account. Depending on the person’s age, the financial institution may require a parent as a cosigner just in case, but the account will be primarily in the holder’s name.

The use of checking accounts is not only a good way to start a credit history, but also to learn about things like charges, minimum balances and overdraft protection. What having a checking account can teach someone who has never really managed money before is how to keep track of money going in and out, balancing a budget, and what happens when there is more money going out than in. While it is never advisable to bounce a check, doing so can be a useful object lesson about what steps to take never to do so again.

Depending on the financial institution, some form of overdraft protection is usually offered. These days, most will set it up as some form of debit/credit card. If the holder of the account goes over their balance, rather than the check being rejected for non-sufficient funds and putting a black mark on the nascent credit rating, the check will be honored and that amount, plus a fee will be charged to the credit card.

This overdraft protection is helpful not only in avoiding bad credit, but with the process of establishing credit as well, in that it can enable the holder the ability to demonstrate responsible use of a credit card. Caution needs to be applied to this process, as the card will have a low limit, and going over this limit will lead back down that bad credit road.

Accounts can be established at either online or brick and mortar banks. When starting out, it is important to research which institution offers the best terms and services for any given individual in order to make sure that the process works to help establish credit, rather than having a negative impact.