People in ChexSystems are not always aware of what landed them there.
ChexSystems is a consumer reporting agency, just like Experian Transunion, Equifax, and other credit reporting agencies. According to its website, ChexSystems specializes in providing banks with consumer reports about checking accounts.
If you’ve ever had a checking account, there is a report, positive or negative, being maintained at ChexSystems. Negative information can remain in a consumer’s file for 5 years.
Although negative information in ChexSystems can be disputed, there is no guarantee the dispute will get the item removed from ChexSystems. While in ChexSystems you may have to open an account online at a non-chexsystems bank in order to have a traditional bank account.
Avoid these actions before you reach the trouble zone
1. Unpaid Balances can get you reported to ChexSystems
Whether you have insufficient fund charges, uncollected overdrafts, ATM transactions or automatic payment fees; or, you deposited a third-party check that bounced — negative balances must be paid. Any unpaid balance may be reported to ChexSystems. ChexSystems can report negative notations for 5 years.
2. Incorrect Information
Fraud is a crime punishable by law. Never open a bank account using a false name. Do not knowingly provide any incorrect information on a bank application because your signature on that application indicates the information is true and correct. If information is found to be false, even at a later date, the bank can report you to ChexSystems. Once fraud is noted in your ChexSystems file, it will be very difficult to open a checking or savings accounts.
3. Check Kiting
The FBI defines check kiting as “a scheme which artificially inflates bank account balances, in accounts that are under common control, for purposes of obtaining unauthorized use of bank funds, through the systematic exchanging or swapping of checks between these accounts, in a manner which is designed to misuse the float that exists in the banking system.”
In simpler terms check kiting involves writing a check from a first account in one bank, then writing a check from a second account at a different bank. The funds from the second check cover the funds from the first account. Check kiting can involve multiple accounts at multiple banks. Check kiters take advantage of the time needed for checks to clear. It is clearly committing check fraud which will not only get you reported to ChexSystems but may also land you behind bars.
» Find Banks that don’t use ChexSystems.
4. Check Floating
Check floating is a common practice among consumers but it can become a problem. You may write a check for a bill or even a purchase one day, then make a deposit or have direct deposit the next day without ever intending to defraud the bank. This is a form of floating checks many consumers have innocently practiced. However, today’s system of electronic funds transfer may mean a check is cleared within minutes instead of days. You may want to avoid floating checks whenever possible.
5. Switching Banks
I get questions all the time from consumers who are unknowingly reported to ChexSystems due to an old account still open. Any time you switch banks make sure you close all accounts at the previous banks and pay any negative balance. Just because you no longer use an account does not mean it is officially closed. Dormant bank accounts are not closed accounts. Fees and charges may still be accumulating on dormant accounts and you are responsible for those fees. Unpaid fees can be reported to ChexSystems, even for minor amounts.
6. Bouncing Checks
Some consumers may be willing to pay overdraft fees. But keep in mind, even if you don’t mind paying overdraft fees, your bank can report that as negative behavior to ChexSystems. Bouncing too many checks makes money for banks but also flags you as high risk.
» Find a Second Chance Bank to get back to checking.
7. Excessive ATM Overdrafts
When you pull more money out of your account then you have available the bank will charge you an overdraft fee. Some banks do not allow customers to withdraw more money than what is available. But there are banks such as Bank of America that allow customers to pull out more money than what is available for a $35.00 fee.
Don’t get me wrong, I do understand there are emergencies and this may be convenient for some customers but it should be kept to a minimum. Having excessive overdrafts is another negative banking habit that may get reported to ChexSystems.
ChexSystems retains information for five years and in those five years it can be difficult to get open a new account even if the item is paid. Second chance banks may work with you to open an account but it is best to avoid behavior that get you reported to ChexSystems in the first place.
If you do not know what’s in your ChexSystems report you are entitled to a free ChexSystems report once ever 12 months. ChexSystems also produces a score, similar to your credit score and you can order your ChexSystems score for a fee.
Tips to Manage your bank account
Stay out of ChexSystems by managing your bank account with the following tips:
- Keep an eye on your account. With online, telephone and ATM banking it is easy to check your balance daily and stay updated on your account activity and transactions.
- Record all transactions in your checkbook register. You may not even write checks but use the check register to record transactions such as: purchases; ATM debits, electronic transfers, ACH withdrawls, credits and other debits.
- Get overdraft protection. Most banks have various forms of overdraft protection. Take advantage of it. It can save you money.
