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Blacklisted by ChexSystems? What to Know

Banking, Checking Accounts
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Blacklisted by ChexSystems? Here’s What to Do

When you apply for a bank account, many banks use ChexSystems to see whether you have mishandled any accounts in the past. A negative report from that agency can affect whether your application is accepted.

The review process is akin to applying for a credit card. A card issuer generally goes through at least one major credit reporting bureau to check your credit. This helps the issuer determine if you’re a risky customer for a new credit card.

Similarly, when you apply for a bank account, the bank reviews ChexSystems to find any negative banking history you might have. (Some banks look at your credit score, too. Get your score free from NerdWallet.)

Here’s how ChexSystems works and how you may be able to overcome any obstacles.

What is ChexSystems?

ChexSystems is a national consumer-reporting agency that keeps track of people who have mishandled a checking or savings account, for example by bouncing a check or failing to pay a fee.

Banks and credit unions share information about these individuals and whether the institution closed their accounts. In return, the agency collects these consumer histories and creates risk scores for banks to use as they consider potential customers.

More than 80% of banks and credit unions use consumer reports from agencies such as ChexSystems or Early Warning Services to help them decide whether to approve bank account applicants, according to the National Consumer Law Center.

» MORE: 5 steps for getting your ChexSystems record clean

How ChexSystems works

ChexSystems provides the following to banks:

  • Risk scores: ChexSystems Consumer Scores range from 100 to 899. The higher your score, the better. You can request your score from the agency via mail or fax.
  • Reports: The reports show items such as unpaid fees (primarily from overdrafts), checks bounced at retailers and suspected fraud. Reports also list credit inquiries, check orders and consumer-initiated credit freezes. (If you have been a victim of identity theft, you can place a freeze on your ChexSystems consumer report. This means no new financial account can be approved unless you authorize it.)

You can get a free copy of your report once a year by visiting the official ChexSystems website. But you might not have one, and that’s a good thing: Unlike credit reports, the ChexSystems ones focus mostly on negative account history.

Are credit reports part of the review process?

Sometimes, banks might want more information than just banking history before approving a new customer’s account, including credit reports.

If a bank offers a checking account with a credit option such as an overdraft line of credit, for instance, it might request credit information. Banks can either pull a person’s credit report from one of the major credit reporting bureaus or get additional information that ChexSystems provides.

How long do items stay on a ChexSystems report?

Although federal regulations allow ChexSystems to keep records for up to seven years, the agency keeps them for five years.

ChexSystems may remove a black mark even earlier if, for example, a financial institution requests it, which sometimes happens after a customer spots an error and logs a complaint with the bank. If you review your report and see any incorrect or out-of-date information, you can also dispute it with ChexSystems.

How do I get a bank account if I’ve been denied?

Getting blacklisted doesn’t necessarily mean you won’t have access to a checking or other account for the next five years.

Some banks and credit unions offer people with blemished histories so-called second chance checking accounts. Although these typically come with monthly fees, customers often can move to less costly regular checking accounts after successfully managing second chance checking for a year or two.

“Bank or credit union managers often have the authority to grant account privileges in spite of negative ChexSystems reports,” says Rob Drury, executive director of the Association of Christian Financial Advisors. In addition, you could try opening an account at a credit union, he says: “Some do not subscribe to ChexSystems.”

You also could opt for a prepaid debit card that has low fees and strong protections.

»MORE: NerdWallet’s best prepaid debit cards

Being denied a bank account because of a negative ChexSystems report or low consumer score isn’t the end of the world. Understanding how the process works and what your current account options are can help you progress toward better money management.

Spencer Tierney is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @SpencerNerd. NerdWallet writer Tony Armstrong contributed to this report.

Updated April 24, 2017.