What is ChexSystems and What Does It Mean If You Are Blacklisted?

chexsystems report

By Janet Berry-Johnson, CPA
Reviewed by Lauren Bringle, AFC®

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:

What is ChexSystems?

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:

  • Account closures
  • Bounced checks and overdrafts due to insufficient funds
  • Unpaid negative balances
  • Account, debit card, and ATM abuse
  • Account inquiries and applications for other bank accounts
  • Unpaid fees, including overdraft fees
  • Suspected fraudulent activity and identity theft

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.

How do you access your ChexSystems report?

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.

Your Chexsystems consumer score

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.

Does your ChexSystems record affect your credit score?

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.

What does it mean to be blacklisted by ChexSystems?

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.

How do you clear your Chexsystems record?

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.

Banking options for people with a poor ChexSystems score

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:

Apply at a non-ChexSystems financial institution

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.

Apply for a second chance bank account

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.

Wells Fargo, U.S. Bank, and BancorpSouth are a few options for second chance checking accounts.

Use a prepaid debit card

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.

How to avoid being blacklisted by ChexSystems

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:

1 - Know your account balance

“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.

2 - Review your bank statement monthly

“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.

3 - Check your account balance regularly

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.

4 - Familiarize yourself with your bank’s fees and policies

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.

5 - Don’t float checks

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.

6 - Be on the lookout for Identity Theft

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.

Final thoughts

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.

About the author

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.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® with Self Financial– a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.

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Written on March 3, 2020
Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@self.inc.

Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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