If you’ve had trouble managing money in the past, it can be difficult to turn the ship around. You probably know that a poor credit score can lead to being denied credit, but you might not be aware of another consumer report that can prevent you from even opening a checking account.
It’s called a ChexSystems consumer report, and getting blacklisted by this reporting agency can create a big obstacle to getting your finances back on track. If you are looking to improve your banking history or open a new bank account, this article can help.
In this article:
ChexSystems is a consumer reporting agency. It’s similar to credit reporting agencies like Experian, Equifax, and TransUnion, but instead of tracking your use of credit, ChexSystems tracks your checking and savings accounts with banks and credit unions.
ChexSystems maintains reports on consumers that includes information on:
ChexSystems generally keeps negative banking activity on your record for up to five years. You can check out this sample ChexSystems report for an idea of what your consumer disclosure report will look like.
By law, you can request a free copy of your ChexSystems report once per year, or anytime your ChexSystems consumer report has been used to deny your application for a new account. You’ll generally receive the report via mail within five business days.
ChexSystems also turns the information on your report into a score. Unlike credit scores, which range from 300 to 850, ChexSystems reports scale from 100 to 899. The higher your score, the better. You can also directly request your ChexSystems score from ChexSystems.
Many banks and credit unions use a ChexSystems report and score to determine whether to allow you to open an account with them. However, the criteria they use when evaluating your ChexSystems report differ from institution to institution.
Luckily, your ChexSystems report won’t have a direct effect on your credit score. Despite this, keep in mind that if you have been rejected for a checking or savings account and have negative information on your ChexSystems report, it reflects that you’ve had past difficulties that can also impact your credit history.
Just be sure to check your credit regularly to ensure your balances and everything else is in good order. Doing so will be good for both your credit score and your ChexSystems record.
If you’re unable to get a bank account, it’s likely because you’ve been “blacklisted” by ChexSystems. But it’s not as though ChexSystems has a list of names that banks consult when evaluating an account application. Instead, being blacklisted effectively means that you have a poor ChexSystems score, and that can be tough to overcome.
With a credit score, the credit rating agencies take into account positive information as well as negative information. So you can rebuild your credit score by taking actions such as paying off debt and making your credit card and loan payments on time.
It’s not so easy to rebuild a poor ChexSystems score. Since the company only tracks negative information about your deposit accounts, the only way to improve your ChexSystems score is to contact Chexsystems to dispute errors or wait until the negative information ages off of your report.
The good news is, not all financial institutions pull reports from ChexSystems. If your ChexSystems report has prevented you from opening a bank account, you still have options.
According to the National Consumer Law Center, over 80% of banks use reports like those available from ChexSystems and its competitors, EWS and TeleCheck, to decide whether to allow a consumer to open an account.
If you have a negative report, here are some alternatives to consider:
Several banks don’t use ChexSystems to approve or deny account applications. This includes national and online banks like Chase, TD Bank, BBVA Compass, and Chime Bank. You might also have luck with local banks and credit unions in your area.
Many banks and credit unions offer second chance bank accounts to help people who’ve had trouble managing their finances in the past get back into the banking system. These accounts tend to come with higher monthly fees and fewer perks than traditional checking accounts, so be sure to read the fine print before you sign up.
If you primarily make electronic payments, consider getting a prepaid debit card and making payments from money you’ve already loaded onto the card.
You can purchase or reload cards at many retail stores and financial institutions. But watch out for fees.
Prepaid cards can charge fees each time you reload the card, use an ATM, make purchases, check your balance, have a transaction declined due to an insufficient balance, or charge a monthly fee just for using the card.
The best way to avoid being blacklisted by banks and financial institutions is to manage your checking account responsibly. The following tips come directly from the ChexSystems website:
“If you regularly balance your checkbooks, you’re less likely to write a check for more money than you have available in your account. When balancing your checkbook, be sure to subtract all debit and ATM transactions (and applicable fees) in addition to any checks you’ve written,” ChexSystems advises.
More and more, today’s checking accounts have automated this process if you manage your account online or through your bank’s mobile app. Aside from checking in on your balance regularly, opt into any alerts that can help keep you on track.
For example, set up low balance alerts if your account drops below a minimum balance. Set payment reminders at least a few days in advance for any upcoming payments so you can deposit money into your account or reschedule a payment to avoid overdrafts.
“It only takes a minute, but it can save you hours of trying to track down mistakes and missed entries,” ChexSystems advises.
Each month, review your bank statement to make sure there are no errors or duplicate charges. There are also plenty of budgeting apps available that can help you track spending. That way, you don’t have an overlooked error that could result in insufficient funds.
While reviewing your complete bank statement on a monthly basis is important, you should also check your balance online, at an ATM, or over the phone regularly. You can also set up transaction alerts at many banks that will text or email you each time a transaction is made on your account.
That way, you can spot and report any fraudulent activity immediately.
Some banks charge monthly maintenance fees, so ask about those fees before you sign up or look for a bank that doesn’t charge them. Also, find out how your bank processes checks. Some banks process the largest checks first. This increases your chances of bouncing a check and incurring higher fees, since if the first check of the day bounces, all checks processed that day will bounce as well.
Some people “float” checks by writing a check before the money is available, counting on the delay between when the check is written and when it clears the account. With the increased use of electronic check processing, float time has been virtually eliminated. Wait until the money is available in your account to write a check.
Monitoring your statements and transactions regularly can help you spot identity theft early on. Protecting your personal information can also help. For example, never give your social security number out to anyone.
Another example? If someone close to you used your Social Security number to open accounts in your name before you turned 18, consider doing a ChexSystems dispute for these accounts on the basis that you were not of a legal age to open a checking account in your own name. Do not let another person’s misuse of your financial information ruin your financial health, or prevent you from being able to bank.
Being denied a bank account due to your ChexSystems report or score isn’t the end of the world. But understanding how the system works and what you can do to overcome it can help you get back on the road to better money management.
Janet Berry-Johnson is a Certified Public Accountant and freelance writer with a background in accounting and insurance. Her writing has appeared in Forbes, Freshbooks, The Penny Hoarder, and several other major outlets. See Janet's profile on LinkedIn.
Build credit. Build dreams.Get started