Chances are you’ve never heard of ChexSystems, or Early Warning Services, for that matter. But if you’ve ever been denied a bank account, they’ve probably heard of you.
ChexSystems and Early Warning Services are the two biggest checking account reporting companies, firms that screen your bank account history when you apply for a new checking or savings account. The financial institution uses information from a reporting agency to determine whether you’ll be a responsible customer and which accounts you’re eligible for, if any.
You can receive negative marks in your reports for an account closed for not repaying a negative balance, or being suspected of fraud. Simply being listed in ChexSystems can cause banks to deny you an account — unless banks opt to use a component called QualiFile, which gives you a score predicting your likelihood of using an account successfully. Early Warning Services also gives a predictive score based on your account history.
Being listed in ChexSystems can be a significant hurdle for people trying to rejoin the banking system, says Jonathan Mintz. He’s the CEO of Cities for Financial Empowerment, a nonprofit that helps promote financial stability in cities.
“All of the efforts that are being made by municipalities, by banks themselves, by nonprofit organizations to help connect or reconnect people into banking end up hitting what I call a brick wall,” Mintz says, when customers are turned away for being listed in ChexSystems.
But Nessa Feddis, senior vice president of the American Bankers Association, an industry group, says reporting agencies are important in protecting banks. If an account holder overdrafts and doesn’t repay the money, “the bank has to suffer the loss, which can be substantial,” Feddis says. “Banks understandably do not want to open accounts for people who do not repay their overdrafts and have caused a loss.”
Avoid being blacklisted by preventing overdrafts. Sign up for low-balance alerts and monitor your account balance regularly.
If you’re denied a bank account because of information from a reporting agency, the bank will give you the name and contact information of the agency that issued it. Here’s what to do next:
- Get a copy of your report from the reporting agency by requesting it online or over the phone. Under the Fair Credit Reporting Act, you have the right to a free consumer report every 12 months.
- Check your report for errors like a wrong account number or outdated information and dispute them. The agencies are legally obligated to investigate any disputes and to fix incorrect information.
Your record lasts for five years. Until it’s cleared, you have some options:
- Get a second-chance checking account. Several banks, such as BBVA and PNC, offer accounts tailored to people who have been denied access to regular accounts. Not all banks advertise these. Call to check if your bank of choice offers one.
- Apply for a prepaid debit card. Although they typically come with fees and don’t give you access to many features that come with bank accounts, prepaid debit cards can be a good alternative.
Amber Murakami-Fester is a staff writer at NerdWallet, a personal finance website. Email: [email protected].
This article was written by NerdWallet and was originally published by USA Today.