When you owe too many account fees or write bad checks, your bank can report you to a consumer reporting agency called ChexSystems, creating a history that other banks can see whenever you apply for a new account. About 80% of all US banks and credit unions rely on ChexSystems reports, which last for five years. You can deal with a ChexSystems history by disputing it directly, by paying off outstanding fees or by looking for new accounts that don't consider ChexSystems.
Why You Might Have a ChexSystems Record
Unlike other kinds of credit reports, ChexSystems only reflects negative information in your personal deposit history. In other words, no news is good news: if you've done a good job managing your accounts, you won't have a ChexSystems record of any kind. If you do have a record, it's likely that you've run into problems with your bank in the past. Any of the following can prompt a bank to file a report with ChexSystems.
Actions Reported by ChexSystems
- Owing unpaid account fees
- Writing or cashing bad checks
- Keeping a negative balance
Overdraft fees are perhaps the most frequent cause of a ChexSystems report. This isn't surprising considering the fact that banks charge overdraft fees when you spend more than you have, putting your account balance in the red even before the extra charge. Some people end up with ChexSystems records when they write checks their balance can't cover, or when they try to deposit bad checks written by others. In general, any activity that might lead a bank to close your account can lead to a ChexSystems report.
Most banks and credit unions treat these behaviors as evidence that a potential customer isn't worth the risk. This makes ChexSystems a formidable obstacle for people who are just looking to start over. If you happen to be a victim of identity theft, the negative history may not even be your fault —but unless you take steps to clear your name or spend years waiting for the records to fade away, you'll face the same difficulties in trying to open a checking or savings account.
How to Remove Your ChexSystems History
According to the ChexSystems FAQ, a reported incident remains on file for five years after the report date. You have the right to view all reports filed against you by requesting a free Consumer Disclosure Report, which typically takes five days to arrive in the mail. Once you have that report, you can review specific incidents in order to dispute them if they're wrong or pay them off if you still owe any fees.
If you have evidence to prove that a report is inaccurate, you can request an earlier removal by submitting a dispute online. You'll be asked to upload some documents that prove a report is inaccurate or not your fault. Even if you have no documents, you can still submit a dispute by phone, as long as you've already received your Consumer Disclosure Report. The company also accepts disputes by mail and fax, but whichever method you choose, it will take about thirty days for ChexSystems to complete its investigation, and a few more to inform you by mail.
Finally, it's important to settle any outstanding fees or negative balances banks have filed against you. If there's a long-overdue overdraft charge or an account that closed while in the red, you can contact the bank to make a payment. You should also ask the bank to remove the report once you pay, but banks have no legal obligation to do so. However, they are required to update the incident as "paid". This isn't as good as getting the report removed completely, but it's still better than leaving the fees unpaid.
Finding Banks That Don't Use ChexSystems
Because 8 in 10 banks and credit unions use ChexSystems to screen prospective customers, there aren't many options for people who want to avoid the system completely. Smaller, local banks tend to be more lenient about ChexSystems, since they don't see as many incoming applications as bigger institutions do. A few large banks, like Capital One, will make it slightly easier for applicants with ChexSystems histories by also considering other reports, like credit history. If you're trying to avoid ChexSystems, begin by shopping local and specifically asking about the bank's policy towards new applications.
If you don't have such options nearby, you might have an easier time finding second chance checking accounts. These accounts are special exceptions made by ChexSystems banks, designed to give people with poor records a way back into banking. However, second chance checking differs from standard checking in several important ways.
Unavoidable monthly fees. Banks typically don't provide any way to waive the monthly maintenance fee on such accounts. Standard checking accounts generally let you avoid the monthly fee by keeping a minimum balance or making a certain amount of direct deposits.
Lower withdrawal and debit limits. Most of the time, you'll have to accept lower daily spending limits on a second chance checking account. You won't be able to withdraw as much cash from an ATM or make as many purchases with your debit card.
No overdrafts or overdraft transfers. Second chance checking accounts do not permit overdrafts or overdraft transfers from a linked savings account. If you attempt to spend or withdraw more money than you have available, the charge will simply be declined. However, you may still be charged a nonsufficient funds fee (NSF) depending on the bank.
No check writing. Most second chance checking accounts do not come with personal checks. While fewer and fewer people actually write checks these days, this restriction may be important if you rely on checks to pay bills or make person-to-person payments.
Online Accounts Without ChexSystems
Unfortunately, second chance checking isn't offered everywhere. If you can't find any local banks or credit unions that offer second chance accounts, you might want to take a look at online banking. Online banks, which have grown rapidly in the past decade, frequently have much lower bank fees than traditional brick-and-mortar banks, and a few of them offer second-chance accounts that you can apply for regardless of your location. Unfortunately, you won't receive in-person branch services with online banks, but if you're starved for options, consider taking your search online.
Some online banks have drastically altered their relationship with ChexSystems in response to public concerns about the system. For instance, Capital One, a major bank with traditional branches as well as online accounts, relies on other numbers in addition to ChexSystems, including your credit score. Another solution is to apply for prepaid debit cards, such as Bluebird or Chase Liquid. Prepaid cards now offer many of the same features as a typical checking account, including debit spending, ATM withdrawals and the ability to receive direct deposits.
However, if you're determined to get back into traditional banking, you shouldn't think of these online options as a permanent answer. Prepaid debit cards and online checking offer a temporary workaround, but ultimately the most effective solution is to contact ChexSystems directly. Whether that means disputing an error made by the bank or paying back a fee that you owe, you'll probably find direct action much more effective than trying to find a workaround.