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Had Charge Off, Want New Account

I had an account at a credit union that was charged off and sent to a collection agency. I paid the collection agency and have a receipt from them showing the name of the credit union and it states that it was paid in full.

I want to open a new bank account, but don't know exactly what I'll need. I was told I needed a "paid in full letter." Who do I get this? Does a charge off effect any kind of bank account I want to open?

First, different financial institutions will have different rules, so if the first one you go to, which has the products, services, fees and locations that are acceptable to you doesn't want your business, go to your next choice.

You had a deposit account that became overdrawn and you were not able to make deposits to bring this to a zero balance before the bank had to charge off the account as a bad debt. Most banks can give only sixty days to a customer to make these deposits. Loans are also charged off, but have different criteria. Both are negative marks when you want to do business with a bank again.

The questions they may focus on are "what happened that caused the charge off?" and "has it been paid?" The dollar amount may also have a bearing. $40 is less of a problem than $4,000. You have the receipt showing your debt was paid in full. If they check with a credit reporting agency that too should show that it was paid in full. If it doesn't, contact them and provide them with a copy of the receipt. As to why it happened, you may have to explain that. Your new bank won't want a repeat of the problem. Banks want profitable accounts. Calling and sending mail asking for deposits to be made or for loan payments is costly to a bank. It makes the account less profitable, and less desirable.

In your case, it happened once, but you paid the price. Checking accounts are overdrawn more often than savings accounts, but both can have negative balances. You may opt for a savings account if the bank is hesitant to offer you a checking, but speak with a supervisor and ask them if you have a satisfactory savings for three or six months, could you then open a checking account.

Published on 1/17/07