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Tim B. Smith
CEO of Probity Financial Services

So let's say you get in trouble with your spending. Whatever the reason, a bank that considers you delinquent will report you to a company called ChexSystems. Once you get put on their list, you can't get a regular checking account at most banks for five years.

So your bank invented this idea called second chance checking.

Aww, how sweet. A second chance for your checking account needs. Before you start feeling the warm fuzzies, let me explain why a bank would offer a second chance checking account.

The banking industry brought in $29 billion in overdraft fees in 2008 alone, which was considered a bad year. People who frequently overdraw their accounts make the bank a lot of money. And you know what happens to a lot of people who overdraw their accounts? They end up on ChexSystems and in need of second chance checking.

The bank is angry at you, so they dump you. But they wouldn't want to lose a paying customer. So in the name of forgiveness, they give you a second chance checking account and make you promise that you'll do better this time. Give me a break. I guarantee you that if second chance checking was designed to help you, the bank wouldn't bother.

The bank doesn't want you to do better. If second chance checking changes your wicked ways, they'll lose money on you. So the bank makes second chance checking lucrative at your expense. Doesn't that feel like kicking you when you're down?

Instead of changing the system to help you manage finances better with a second chance checking account, the bank does the same thing that it did before: it charges you overdraft fees. Most second chance checking accounts don't let your minimum balance go below $0, but they still charge you overdraft fees for hot checks.

Solution: stop charging second chance checking customers overdraft fees. At Probity, if a second chance checking purchase isn't good, you'll only have the vendor to deal with, not us. We don't make money off of your overdrafts.  Our goal is to try and stop you from the nightmare you came out of. Let's just say that with second chance checking, we're interested in a long term relationship.

Capitalism is amazing.  If a whole lot of people don't like any of the cheese graters on the market because they aren't sharp enough, someone will invent a sharper cheese grater because they'll be able to sell them like crazy.

This applies to your frustration with overdraft fees. Checking accounts are one of the products that a bank offers. And if a whole lot of people are upset about overdraft fees, someone will eventually discover a way to bank without overdraft fees. How has the banking industry evolved to solve the problem of large overdraft fees? Tried and true, the free market is offering more and more solutions to keep you from consistently overdrafting your account.

Overdraft Programs

The most readily available method of getting rid of overdraft fees is changing the way your bank deals with them. When you sign up for an account, the bank automatically enrolls you in an "overdraft protection" program that allows them to cover your overspending and then slam you with overdraft fees.

Overdraft protection was helpful to consumers back when it was used to cover bounced checks. The overdraft fee was usually less than what the merchant charged for the hot check. However, today there are more purchases made by plastic than with paper checks. By asking your bank to remove you from their overdraft program, your debit card will simply be declined when you don't have enough funds to cover a purchase. Most banks will allow you to do this.

Some banks will allow you to open up an overdraft line of credit. When you overdraw your account, the bank will consider it as borrowed money and then charge you interest on it. The credit limit and interest rate vary from bank to bank, but it sure beats an overdraft fee.

New Banking Products

A community bank in Michigan now offers a "peeking program." For $4 a month, customers can have the option to see what checks will be processed later in the evening. This leaves them a few hours to prevent overdraft fees by making a transfer or a deposit. Originally used by businesses to prevent fraudulent transactions, this technology has proved very useful for preventing overdraft fees.

And of course, my company, Probity Financial Services is the only place in America that I know of today that offers a checking account with absolutely no overdraft fees and no interest. Instead, you pay a flat fee every month, which can be a huge savings for those who overdraft their accounts regularly.

Tim B. Smith
CEO of Probity Financial Services

Ten years ago, you wrote checks. We all did. Or, you went to the bank, withdrew money, and paid with green pieces of paper and small metal disks.

Remember what happened when you wrote a "hot check"? It bounced. The bank charged you an overdraft fee and then returned the check to the vendor, who then charged you another fee of about the same amount.   Sometimes it bounced between parties more than once. It was a real nightmare.

To save the embarrassment and multiple fees, banks began using overdraft protection programs. Under this program, the bank would cover your check for the amount you didn't have and then charge you a fee.  

Fast forward 10 years, and overdraft fees have become a $29 billion business for banks. What happened? The answer is simple: debit cards. Debit cards happened.

In the year 2000, debit cards comprised 8.3 billion of all non-cash retail payments. By 2006, debit cards comprised 25.3 billion. In the wake of debit cards, check payments went from 41.9 billion to 39.6 billion, even though there were many more non-cash retail payments made that year.

Debit cards and ATM cards now cause about half of the overdraft fees. A check used to take several days to clear, and you had to keep a personal register. Debit cards happen in real time, and a lot of people don't keep a register for a debit card when they can just check their balance online. It takes away from the convenience of having a debit card.

So what happens if the bank declines a debit card transaction?  There are no fees.  Embarrassment, yes, but no fees.  If the bank gives the consumer an overdraft limit instead and then authorizes the transaction, they get to collect a fee.

Banks are extending a practice they have had for years.  But they haven't evolved with the technology.  Now that plastic represents over half of the non-cash transactions out there, the products and services banks offer has to change.

Tim B. Smith
CEO of Probity Financial Services

 I hate paying bills. Chances are, you do too. It's one of life's little chores that you put off for as long as possible. For some of you, you put if offer longer than "possible," which usually means missing some bill payments. And no matter how nice the weather might be this time of year, you probably want to keep living indoors with all of your basic utilities.

But wouldn't it be nice if someone just paid your bills for you? My friends, let me introduce you to online bill pay. Online bill pay works like this:

You go to your bank's online bill pay system and tell them what companies you pay your bills to each month and how much you pay. If your bill is variable, no problem. You can change it each month in the online bill pay system.  The bank's online bill pay system then allows you to automatically withdraw that amount every month and sends the money to the biller.

The tricky part is that not all online bill pay systems are the same, and you want the best. What does online bill pay need to have to make sure your bills get paid on time with no hassle to you?

Your bank probably links its online bill pay system to the major vendors out there like cell phone companies and cable companies. Drafting your online bill payment to Sprint or AT&T will be no problem. But let's say you're renting a house from an individual and want to set up online bill pay for it. Most banks deal with this by cutting a paper check from your account and mailing it to the individual. Aside from the risk of mail getting lost or delayed, this takes much longer. You'll probably have to tell the online bill pay system to pay the person a week before the actual due date.

Regardless of the convenience of online bill pay, you typically don't want to give money to someone long before it's due. The longer you hold onto money, the longer you'll keep a cushion in your account. A superior online bill pay system should allow you to direct deposit to anyone.

"But wait! Direct depositing means I have to have to link my bank account to my landlord Joe. There's no way I want him accessing my bank account, and I know he won't want me to see his."

Probity's online bill pay eliminates the need for this. You would ask Probity to set up the payment, determine a password for the payment, and then let Joe know the password. When Joe gets an email asking to deposit, he just types in the password to get to the money. The online bill pay sidesteps both you and Joe having to know each other's bank account number, and the online bill payment happens on the day it needs to happen, not a week in advance.

This online bill pay feature has a lot of uses. Say your son or daughter goes off to college and you want to put money in their account every month. Through online bill pay, they still get the independence of not showing you their account balance, but have access to those funds.

If contemplating online bill pay, you should try looking into some bonus features. Probity's online bill pay system lets you send gift checks from online, for instance. Our online bill pay even gives you a message and theme option for the check. This can really come in handy on birthdays when you're crunched for time or don't know what to get somebody.

So if you're looking into online bill pay, do a little research on what goes on behind the curtain. It's a convenient system, but make sure you get the online bill pay package that works best for you.

Tim B. Smith
CEO of Probity Financial Services

Online banks are just that: completely online. There are no physical branches that you can do business at. Theoretically, an online banking gives you access to all the same things that a brick and mortar bank does, but it really depends on what you need a bank to do.

Here are a few questions that might help you decide whether or not online banking is a good choice for your lifestyle.

Online Banking - Do you have internet access?

The great news about online banking is that you can get inside your "bank lobby" anywhere that has an internet connection. Just make sure that you are able to use a computer with the internet as often as you need to check on your bank account.

Online Banking - Do you use a debit card?

If you use a debit card, online banking has you covered. Checks are typically available through online banking, but you generally have to buy them. If you only use checks to pay your bills, you can switch to an online bill pay system very easily.

Online Banking - Does your employer direct deposit your paycheck?

In the old days, you got a paycheck on Friday evening. You drove to the bank and waited in line for everyone else with a payday check before it was deposited into your account. Obviously, online banking means that there won't be any place for you to cash that check. Online banking can still take care of it, but you probably don't want to go through the hassle and delay of mailing your paycheck.

Now, most employers will deposit your paycheck directly into your account if you bring them your account number and routing number (a number that is unique to each bank). If this is your current situation, online banking would be a great idea for you.

If you don't currently use direct deposit, chances are that your employer has an option for you to do this, and switching to direct deposit is as simple as asking your employer to do so. Direct depositing your paycheck is worth the trip to the bank in most circumstances, whether you bank online or not. Don't be afraid to change, and don't let changing stop you from considering the convenience of online banking.

Online Banking - Do you feel comfortable with online bill pay?

You can get checks from your online bank, but why bother? You can get checks from any other bank. One of the conveniences of banking online is being able to pay your bills automatically. You fill out a form online that says who you need to pay and how much every month, and the bank does it for you. The danger here is getting low on cash, forgetting how much money is dedicated to bills, and accidentally overdrafting your account.

Of course, my solution to this problem would be to find a checking account that offers an excellent bill pay system and doesn't charge overdraft fees, but I'm sure you'll be hearing that quite a bit from me.

Online Banking - Do you use your bank's "extra" services very often?

There are some other things that online banking can't do for you, such as provide a cashier's check or a notary. Most people don't use these services enough for it to keep them away from the convenience and benefits of online banking. If your new landlord requires that you pay your first month's rent with a cashier's check, ask if they'll take a debit card. If you need a document notarized, you can simply call your local title company or car dealership to find a notary.

In short, online banking is faster, more convenient, and kills less trees. If you're comfortable in the electronic world, online banking is a great choice. If you're a heavy paper user, consider changing a few habits to enjoy the benefits of online banking.

Tim B. Smith
CEO of Probity Financial Services

What is a credit score?

A credit score is a three digit number that shows how good you are at borrowing money and paying it back. The higher the credit score, the better you've done on the test. The number can be anywhere between 300 and 900, with most scores ranging between 600 and 700.

Why does it matter?

When you want to borrow from a lender, the lender looks at all the times you've borrowed money in the past. By attaching high numbers to good things and low numbers to bad things, they can set limits on who is allowed to borrow from them. If your grade isn't high enough, you won't pass the test, and you won't be able to borrow from them.

Who determines my credit score?

Most lenders will not total up your score themselves. Instead, they'll pay one of the major credit bureaus to do it for them. If you're confused about the basics of credit, or if you don't know what a credit bureau is, you find out more at my post about credit reports.

How is a credit score determined?

Each bureau has a slightly different formula for determining your credit score, but they all do the same thing. Instead of worrying over complex formulas and exact numbers, it's much easier and more beneficial to know what areas of your life are affecting your credit score and how much each area can affect your credit score.

Credit Score: History - This area of your finances matters most in determining your credit score. This area of credit scoring looks at whether or not you pay your bills on time and if you have any negative public information out there in the court records, such as bankruptcy. It influences about 35% of the final score.

Credit Score: Amount - This part of your score influences the final number about 30%. It considers what credit you have out right now. Are you paying down your debts consistently? Do you have too much credit taken out? Do you have not enough credit taken out?

It's a good idea to only use about 25% of your total credit limit, or the total amount that you're capable of borrowing right now. Anything over 80% is bad news, as is any credit account standing at 0%. Unused credit cards are not the way to go, and maxed out credit cards are even worse.

Credit Score: Time - Fifteen percent of the final score is determined by how long you've had credit. How long has it been since you started borrowing money? How long have you had each of your accounts. The longer a transaction or item has been around, the more it affects your score. If you've had your mortgage for 27 years and have never missed a payment, your score will be much improved. If you foreclosed on the house last year, it will hurt you quite a bit.

Credit Score: Account Information - Ten percent of your score is decided by how many credit accounts you have open and what kind they are. Variety is your friend. A person with a mortgage, two credit cards, and a car loan will have a better rating in this area than someone with four credit cards.

Credit Score: Sudden Changes - The last 10% of your score is determined by recent activity. In essence, it's not a good idea to open up many new lines of credit at once. One of the ways they measure this is by seeing how many times someone requested a credit report. Every time you ask to borrow something, the lender takes a look. If you start checking your report too often, it can look like you're asking a bunch of sources for money, which will bring down your credit score.

How do I see my credit score?

You can request a credit score from one of the three major credit bureaus for a small fee. If you visit http://www.experian.com/ and sign up for a trial membership, you can get a free viewing of your credit score. Make sure to take the effort and cancel that membership before the end of the seven day trial period, or they'll begin billing you for a monthly membership.

Tim B. Smith
CEO of Probity Financial Services

Credit Report - What is credit?

Let's start with the basics. Credit refers to any time you've borrowed money. The two main instances of credit are credit cards and loans.

Credit Report - What does the report cover?

A credit report will give information that identifies you, information about your credit, public financial information, and who has accessed your credit report in the past two years.

The credit information part of your credit report includes all forms of credit that you've taken out in the past seven years. Your primary credit card, department store credit cards, your mortgage, student loans, and so on will all be on your credit report. It will say who you borrowed from, how much you borrowed, what the terms of the borrowing were, if you missed any payments, and whether or not the card or loan is still active.

The public financial information included in your credit report is anything that can be found in court records. This includes filing for bankruptcy, liens against your personal property, and any court ordered payments (known as "monetary judgments" in legalese).

Credit Report - Who wants to know about this anyways?

Your credit report will be viewed by anyone who lends you money, and to some extent, anyone who lends you property. 

Anytime you take out a loan or a new credit card, the bank or organization offering it to you will want to look at your credit report to see if you tend to pay things back, and if you tend to do it on time. Other people who might be interested in your credit report are government agencies, your employer, a landlord, or insurance companies. Your credit report is available to only those who have a legitimate business need for it.

Credit Report - Why is this important to me?

Your credit report and your credit score are what lenders use to determine whether or not to let you borrow something. It is always up to them whether or not to actually give you the money, government benefit, apartment, etc., but your credit report is the main influence. Let's say your credit report shows that you never paid off your car, or that you're consistently late in your credit card payments. A credit report like this may make it difficult for you to buy a new car or take out a new credit card. Your credit report can also help determine how high of an interest rate the lender will charge you.

Credit Report - Who writes all this stuff down?

There are three major credit reporting bureaus in the United States that keep all of your information and generate credit reports. They are Experian, Equifax, and Trans Union. If anyone pulls your credit report, they will most likely get it from one of these three names.

Credit Report - Should I look at my credit report?

Everybody should check their credit report every year. Have you ever lost something in a big stack of papers? By keeping detailed records of nearly every adult in the United States, it's very easy for one of these credit reporting bureaus to make a mistake. Nearly half of all credit reports have some kind of error on them, so it's important to double check your credit report.

A misspelled mailing address might not be a huge deal, but some errors could mean something as large as not being able to buy a house. If you find an error on your credit report, you can visit the website of one of the credit reporting bureaus and fill out an online form to dispute an error.

Credit Report - How can I get a copy of my credit report?

You can get a copy of your credit report by asking one of the three reporting bureaus for one. You can access all three bureaus by going to http://www.annualcreditreport.com/.

Be aware that you only get one free copy of your credit report from each bureau per year. This means three free credit reports a year. But watch out, checking your credit report too much can make your credit score go down.

Credit Report - What's the difference between a credit report and a credit score?

A credit report shows the who, what, when, why, and how of the money you've borrowed.

A credit score is like getting a grade on a test. It's one simple number that shows how "good" you are at borrowing money. For more information on this, see my post on credit scores.

Tim B. Smith
CEO of Probity Financial Services

College Students typically live on a pretty tight budget. You haven't had the full college experience until your fridge has nothing but a flat Dr. Pepper and three pieces of cheese. Is it any wonder that students often struggle with overspending?

For many students and their parents, prepaid debit cards are becoming an increasingly popular way to control spending. But are prepaid debit cards a good idea for college students? Are prepaid debit cards a good alternative to a bank account?  What is the down-side to a prepaid debit card?

If you'll take a look at some of my research below, I hope you'll see that a checking account has many benefits over a prepaid debit card.  Prepaid debit cards work just like loose cash and don't affect your credit score. Prepaid debit cards may be a great way to control the part of your budget that goes towards the movies, clothing stores, or eating out. But to get through the rest of life, you're probably going to need access to a bank account.

I found three major areas where prepaid debit cards can really bring you down.

Prepaid Debit Cards - Fees

Prepaid debit cards really cost. Maybe even more than a bank account. After researching the terms and services of several popular prepaid debit cards online, here is a list of typical fees that I came up with.

• Asking what your balance on the card is
• Using your PIN number. Many college campuses are surrounded by small, trendy shops that require a minimum purchase amount before they will swipe your card as credit.
• ATM withdraws
• Currency conversions (2% of the amount and more). This is a killer for those studying abroad in America.
• A replacement card
• Getting a check written
• Not spending anything for a month
• Getting the rest of your balance if you want to close the account
• Stop payments
• Stolen card investigation
• Customer Service calls

Most prepaid debit cards will cost between $30 and $60 per month based on "normal" spending patterns. Unless you overdraw your checking account frequently, prepaid debit cards probably cost as much as or more than a regular checking account in fees. 

Prepaid Debit Cards - Lifestyle Limitations

Many prepaid debit cards are not capable of handling the spending required by life. For example, many prepaid debt cards have dollar limits in more ways that you can think of. There are limits on how much you can spend in one day, how many transactions you're allowed per day, how much you can spend per transaction, and of course, how much you're allowed to load on the card at once.

Limits vary amongst prepaid debit cards, but prepaid debit cards can be a very bad idea for rent, tuition, text book expenses, or any "back to school" preparation shopping where you may risk going over these limits. If you receive student loan installments, prepaid debit cards might not be able to hold the total installment. 

Also important is that many prepaid debit cards are not linked to any financial institution. In other words, many prepaid debit cards cannot offer you FDIC insurance for your deposit. If the company offering prepaid debit cards goes bankrupt, there's nothing guaranteeing you your money.

Prepaid Debit Cards - Long-term Inconveniences

There are some things to look for when shopping for prepaid debit cards that you might not think of right away. It really depends on your needs, and your needs may change a lot from year to year at this stage in your life. Read the terms of service carefully.

1. Does the card offer billpay options? This can be important when learning the discipline to pay utilities on your own for the first time.
2. Does the prepaid debit cards provider reserve the right to cancel your card at any time, especially when you go over your balance?
3. Are you able to freely contact customer service representatives for help?
4. Are the services that you really need only given to you for a fee?
5. Are you required to go inside the gas station to pay for gas?

Prepaid Debit Cards - My Conclusion

When it comes to prepaid debit cards, I think they're a great option for those students who value their spending limitations at $30 per month or more.  However, prepaid debit cards should be used for petty spending only. Most prepaid debit cards cannot and should not replace a traditional bank account.

And if you need to get a bank account anyways, even if it's not for a few more years, you might as well save yourself the trouble of prepaid debit cards. Just stick with the bank account.

Tim B. Smith
CEO of Probity Financial Services

It's two days away from payday. You decide to see how much money you have leftover before you make a trip to the grocery store. It turns out, you have not only used up all the money in your account, but now the bank is charging you an overdraft fee. How can you fight overdraft fees and get them removed from your account?

After being in the banking industry for quite some time, I've learned a few things about overdraft fees that I hope will help you out.

First of all, don't wait to deal with overdraft fees, because they'll usually get worse. Many banks charge additional fees for each day that your account remains overdrawn. Turn your account balance back into a positive number as soon as possible.

Start the process of getting your overdraft fees taken off by having an honest talk with your bank about it. You'd be surprised by the number of people who successfully get an overdraft fee overturned just by asking.  The key is to talk to a real person.  Human interaction is the most important part of trying to get overdraft fees refunded. Unlike a computer system, it is possible to make a human being understand your overdraft fee situation just by talking to them. 

An in-person visit is the most likely to be successful, but a phone call is acceptable if you can't make it to the bank today. Oh, and be friendly and polite. Yelling at someone will make them less likely to hear you out.

Now that you're there talking to them, you want to know how to tell your story in the best way possible.  Start using anything you have to make the bank more willing to return your overdraft fees. Chances are, you probably have your list already made. These are the phrases you've been yelling about to your friends that begin with "overdraft fee" or "I hate my bank."

Let the bank know if the overdraft fee has happened because they made an error. In this scenario, they will almost always return the fee.  Check your bank statement against your own receipts.  Not recording your address correctly or charging a purchase to the wrong account are other bank errors that may result in overdraft fees.

Are the overdraft fees from a vendor putting a hold on more money than they actually charged you when you used your debit card? Is this is the first time you've received overdraft fees your account? Have you been a loyal customer for a long time? Were the purchases very small and insignificant? Point out anything that could make a convincing argument about why they should refund your overdraft fees.

There are a number of banks that try not to charge overdraft fees on social security deposits, but it is very difficult for them to isolate these from other account activity. If you receive social security benefits and are being charged overdraft fees, you might want to check into this.

If this doesn't work, you'll have to eat the overdraft fees. But the good news is that you can prevent them from happening again. 

Did you know that most banks automatically enroll you in the program that causes overdraft fees?  It's called "overdraft protection", and according to the bank, they do it because they're saving you the embarrassment of having your check bounce or your debit card rejected.  However, every time the bank says yes to that morning Latte that you really can't afford, they pop you with an overdraft fee.

That might be a great solution for some, but in my experience, most people would rather save the money they spend on the overdraft fees. Just ask to be removed from their overdraft protection program.  But beware check writers. Not getting overdraft fees means that the bank will allow your check to bounce, and merchants will force you to pay return check fees.

And of course, you can always change banks. A bank that does not treat its customers well will not change its ways unless it loses enough business first. 

If you're interested in switching to a checking account that doesn't charge any overdraft fees, you can apply for a Probity account online. It's free, easy, and it only takes about ten minutes.

Tim B. Smith
CEO of Probity Financial Services

What do you do when you want a free checking account? For most of us, this simply means going to our local bank branch and signing a few papers. And then what? For 74% of us, there is no "what". We pay our bills. We brush our teeth twice a day, wake up early on the weekends and balance our checkbook, watch Letterman, and take the dog for a walk. 

But for the other 26% of us, something happens after we say "I do" to free checking. We accidentally overdraw those free checking accounts.  We don't spend each and every Saturday morning balancing our checkbooks.  We don't keep extra cash lying around in our checking account.  Maybe we have multiple debit cards on our account and don't coordinate every single purchase with our spouse.