Bad Credit and Chexsystems

by : Joseph Then

You're heard of bad credit as it relates to credit cards and loans, but did you know there is another form of credit that you can ruin that is completely reliant on your banking history? That's right: what you do at credit unions and banks can affect your ability to open new accounts in different locations in the future. In fact, the US Government estimates that more than 25,000,000 US citizens have been blacklisted from opening accounts at more than 80% of banks for this reason.

Let's start with what will get you blacklisted. The most obvious thing you can do to get blacklisted is to continuously overdraft your bank account. For this reason, it is almost always a good idea to avoid forms of autodraft payment if you do not receive regular pay check or if you do not pay careful attention to your finances. However, in most cases, overdrafts alone wont get you blacklisted. In fact, many banks will even allow you to overdraft several hundred dollars without penalties.

What will get you blacklisted is failure to pay penalties or to pay back an overdraft. Some people who overdraft will simply take off and open a bank account elsewhere. This is where Chexsystems comes in: they provide bank account credit histories for almost all financial institutions in the United States. This means that if you have a bad history of overdrafts, there's a good chance Chexsystems knows that and will report it to the next financial institution you go to.

However, it is important to note that Chexsystems itself does not actually have the power to deny or accept a given account. All they do is provide your financial history to financial institutions to which you apply to allow them to make an informed decision. Additionally, much like the three major credit bureaus, they are regulated by the Fair Credit Reporting Act.

If you have a blemish on your record from a previous financial institution, Chexsystems will keep it on record for up to five years, which means it will be near impossible for you to open up a new checking account, unless your target bank has very lenient rules.

So what can you do to repair your credit with Chexsystems if you are currently locked out of the banking system? If you're positive that you don't actually deserve to be blacklisted, you should contact Chexsystems and dispute claims against you. Legally, you're allowed to provide a one-paragraph counter explanation for each mark on record.

In almost all situations, however, you are far better off contacting the institutions you are currently in trouble with – and asking them what they need from you. Usually, you will simply have to pay off an overdraft and then you will be in good standing with that institution. Once you pay off your overdraft, however, you will want to contact Chexsystems to make sure they begin the process of clearing your record.

In addition to simply making sure you are in good standing with financial institutions, you should follow the instructions above to make sure you do not get blacklisted by Chexsystems.