The introduction of bank machines, internet and telephone banking has not only changed the way we do banking, but it has also changed the humble bank account.

Did you know that more often than not, applying for a bank account requires a credit inquiry?

It’s true.  You can comfort yourself by believing that the inquiry is part of the identification process, which is true.  A credit inquiry will assist financial institutions in protecting your identity, since credit reporting agencies apply identity warnings to your credit report when needed.

But, did you know that in the self-serve banking era, bank accounts have taken on the traits of a credit product?  It all started with that little plastic card you carry in your wallet.

When automated bank machines first took the stage, a consumer could deposit a paycheque and be able to withdraw it right away.  Of-course, some not-so-clever individuals felt they could fool the machine by depositing empty envelopes as if there was money in them.  Apparently, these individuals didn’t understand that someone would open the envelope.  The banking system therefore needed a way to determine the likelihood of legitimate deposits.  

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Initially, your banking history with a specific institution was enough to satisfy the bank you would be making legitimate transactions and deposits.  But as the automated system took off, less and less consumers were actually walking up to the tellers, and as a result, the personal connection to our finances was lost.  So banks needed a new way to establish client trust.  They turned to credit reports for assistance.

When you open a bank account with automated access, the bank will take a peak at your credit report to determine what your account credit limit should be.  Yes, credit limit.  I’m not referring to overdraft, I’m referring to deposits.  When you make a deposit at a machine, the machine itself cannot determine if the cheque is nsf, counterfeit, stolen or keyed in correctly.  Therefore, in reality, the bank is allowing you use of their money until the deposit has been verified and processed.  That is what we call credit.  

Examining your credit report provides the financial institution with a guideline to understanding your habits, and allows them to determine how much credit they can extend you on your deposits.  Of-course, people with little or no credit can also build up trust the old fashioned way, by being a good customer and having their accounts reviewed to increase the credit limit on their deposits.