The Credit Check Situation

For the last week, there have been numerous reports of individuals who have opened Electric Orange checking accounts and after sixty days have had a credit check run on them. Here’s a typical example of such a report at Consumerism Commentary. In some cases, apparently, after this credit check, the Electric Orange account is closed. To me, at least, this is rather ominous behavior as initial descriptions of the account indicated that there would be no credit checks, so I began investigating.

First of all, from their FAQ:

Do you pull my credit if I apply for Electric Orange and the Overdraft Line of Credit?
Yes. As part of your application, ING DIRECT will obtain information about you from a consumer credit reporting agency (a “hard pull”) to confirm that you are eligible for Electric Orange.

So, indeed, the standard practice for people who sign up for an Electric Orange account is that they check your credit report with a hard pull. A “hard pull” generally means about a -5 on your credit score that lasts for about six months, then goes away. MyMoneyBlog has an extensive explanation of hard pulls versus soft pulls.

So where did the idea that ING did not pull one’s credit come from? The story that I have been able to piece together is that when ING first sent out press releases for the account, their official policy was to give everyone a $1,000 line of credit without a credit check. Most of this initial information was sent out in January 2007 and was posted on various banking sites that post press releases and such.

Sometime shortly thereafter, ING changed their policy for new accounts. I spoke to a customer service representative at ING who basically said that this change happened a few months ago, implying that it was likely in February or March 2007. The change stated that ING did have the option to run a credit check at their discretion. Now, the policy is as stated above.

Why did they make this change? I have read many, many reports of people signing up for Electric Orange, immediately “overdrafting” their checking account, and using the overdraft protection as another credit card, which was not the purpose of the account at all – it was intended as an occasional protection against overdrafts. I would strongly speculate that this behavior warranted the change in policy from ING.

What can we learn from this? First of all, know what you’re signing up for, no matter what. If you read a four month old press release on a product, sign up for it without reading the documentation, and find out that things have changed, you’ve made a bad move. Don’t rely on second-hand information ever – investigate for yourself. Blogs like these are meant to get you thinking and point you in the right direction, but you have to do the investigation yourself.

Second, you need to ask yourself if a credit check like this is an issue for you. The credit protection offered by this account is exactly what I want. I’ve overdrafted once in my life and it was due to a mathematical error – but it ended up costing me almost $100 to deal with. With Electric Orange, it wouldn’t cost me a thing other than a few cents in interest. Plus, the account balance itself earns a 4.00% APY. My credit is stellar, so I’m not bothered by the credit check, but if your credit is poor or you’re sweating every single point on your score, this could be an issue for you.

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  1. Mama Money says:

    Very interesting. I’ve thought about opening this, but I am trying very hard not to have any more hard pulls on my credit report through 2007, so this is very good to know.

  2. Without the hard credit pull, Electric orange would be a great deal for many. However ING could not have continued with too much of risk in this way. They would have just revised the policy and given it minimum publicity necessary.

  3. Trent says:

    You’re spot on. I think it’s a good business decision by ING and it doesn’t really matter to people with good credit, but it is undoubtedly bad publicity for them.

  4. Well, ING got it wrong first of all to come up with a creative service without doing the due diligence. So they have to pick up their share of bad publicity. It also might make them look selective with good service which can be a plus for them. Delaying gratification reduces risk.

  5. Anne says:

    I opened an Orange checking account to put away my $20/day. :) I didn’t care about overdraft protection, but it looks like I have $250 of it. Here’s the thing: When I log into my account, at the top of the summary page I see this:

    Balance – Pending = Available Balance + Overdraft Line = Spending Power

    My “Available Balance” and “Spending Power” are in bold. So I think it’s disingenuous of ING to now claim that overdraft protection is only for occasional use because they’re sure pushing it for access for spending.

  6. Robert says:

    I just switched banks due to their overdraft policy.

    I still think it was a bank error, but money went in and out of my account the same day, and somewhere in there, they claimed I overdrew the account by $40. (the deposit was 1000+). I eventually got the ‘overdraft fee’ refunded, but they still screwed up.

    In the few days were I wasn’t sure if I was going to get my $5 back, I found a local bank that combines checking and savings and gives 6% interest on that account. Even though my old bank got the stolen ‘fees’ refunded, they still lost a customer.

    http://www.firstbankonline.com It is a local bank (West Tennessee) and it even has a brick and mortar branch

  7. Brad says:

    @ Anne: I completely agree. It irritates me that they make it more difficult to see your actual balance by putting the “spending power” in bold. Sure seems like they want people to use the overdraft line of credit. That small gripe aside, Electric Orange is a great account. I am glad to be moving away from my monolithic brick & mortar establishment where I’m slammed with fees left and right. Go go ING.

  8. chris g says:

    I only have the HSBC online account, I love the savings, but have been thinking of opening ING to move the interest I make from HSBC to ING, kind of like a forced savings, but with interest only moving. Sound like maybe ING may not be the right choice?

    What does it matter if your credit gets “pulled” what does this mean and why is it so bad to have it pulled often, finally, does it really matter if you have good credit?

  9. J says:

    Unless I am not fully understanding this entire entry (fees or whatever), I think I can swing by -5 credit points in my credit score. Yeah, it’s going to stink a little bit but only for 6 months. My credit is not perfect but pretty close to spare -5 points and get some of that high interest.

    You can get those points back by making a big purchase with a credit card and paying it full right away (I recommend having the money FIRST before using the credit card). This strategy has worked wonders for me to pull up my credit score.

    I guess “there’s no free lunch”.

  10. HappyRock says:

    It benefits the financially responsible for ING to do a credit pull. It allows them to lower their risk, which will keep them providing lower cost innovative services to their targeted clients.

    One thing that really disappointed me was when I tried to open two Electric Orange accounts(personal and business), and was told that it is one account per person at this time. A joint account counts as one account for both people. Hopefully they change that soon.

  11. Arby says:

    I have my paycheck deposited to a Fidelity account, but HSBC or Emigrant Direct are good alternatives. All three options are approx 5% interest.

    Most of my monthly bills are automatically charged to my Chase credit card. I get cash back on these payments and approx 6 weeks of free interest. I pay the minimum balance electronically early in the payment cycle so as not to get hit with any late fees If I foregt which I never have. Near the end of the cycle I pay the entire balance.

    I have a no fee, no minimum balance checking account with an ATM card at my local brick and mortar. I can move funds from Fidelity in two days. From this account I take cash, pay my credit card bill online, and write out my rent check.

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