Blacklisted by ChexSystems? How to Get Back on Track and Open a Bank Account

Getting denied for a bank loan is fairly common. Having the banks block you from opening a bank account is something else entirely. Being blacklisted by ChexSystems could be the cause. Thankfully, it’s not a permanent financial death sentence. This article explains what being blacklisted by ChexSystems means and how to get off the bank's red flag list.

Key takeaways covered in this article:

• Being "blacklisted by ChexSystems" means you have a poor banking history that may prevent you from opening new accounts—but it's not a permanent label.
• ChexSystems is a consumer reporting agency used by banks to assess the risk associated with your account, similar to how credit bureaus determine creditworthiness.
• Common reasons for negative ChexSystems reports include overdrafts, unpaid bank fees, and suspected fraud.
• You have the right to request a free Consumer Disclosure report from ChexSystems every 12 months to review what's on file.
• Second-chance checking accounts are specially designed for individuals flagged by ChexSystems and offer a path back to traditional banking.
• ChexSystems records typically remain on file for five years, but improvements in behavior can boost your score and open new banking opportunities sooner.

Understanding the impact of a ChexSystems report

Traditional banks that use ChexSystems can deny a checking account application based on the bank history published in your report. Negative marks come from overdrafting bank accounts, bouncing checks, and defaulting on loans. These are red flags for a bank or credit union because they indicate poor money management skills.

An inability to open a traditional checking account leaves the applicant with limited options for conducting financial transactions. This situation forces many people to rely on expensive alternatives like check-cashing stores, prepaid cards, and money orders, all of which come with hefty fees and limited financial growth opportunities.

Individuals on the ChexSystems blacklist have difficulty building credit because most of their payment alternatives don’t report to the credit bureaus. They also lose out on building relationships with established financial institutions and accessing the credit products those institutions may offer. That includes credit cards and unsecured personal loans.

Thankfully, being flagged by ChexSystems isn’t a permanent situation. They keep their records on file for five years, but there are ways to improve your status with the banks sooner if you’re willing to put in the work. While you’re doing that, you might also increase your FICO Score. The two typically have a reciprocal relationship.

What is ChexSystems and why does it matter?

ChexSystems is a consumer reporting agency that tracks and records banking behaviors. They’re similar to credit reporting bureaus like Experian, TransUnion, and Equifax. The difference is that those agencies track how you manage credit. ChexSystems focuses on how you manage your bank accounts to assess risk for the banking industry.

Bounced checks, overdrafts, unpaid bank fees, and closed accounts with negative balances are the most common factors ChexSystems uses to compile its reports. They also track fraudulent activity and identity theft. Unlike credit bureaus that record good and bad credit reports, they focus exclusively on negative history. Banks use this information to make informed decisions.

What banks use ChexSystems? At this point, most traditional banks use them to evaluate potential customers. If you’re viewed as high risk, they may deny you a checking or savings account. Understanding and managing your ChexSystems record is crucial if you want access to those banking services. Your options without them will be limited.

It’s important to understand that ChexSystems is not a “credit blacklist.” ChexSystems is often described as a “banking blacklist,” but the banks prefer to look at it as part of their risk management strategy. Many banking professionals will help you get off that list if you ask.

What is a good ChexSystems score?

ChexSystems uses a scoring system to assess your risk to banks. A ChexSystems score can range from 100 to 899. Traditional banks typically look at scores over 600 as favorable, but this varies from institution to institution. Scores between 500 and 600 are in a gray area, while scores below 500 are generally a failing grade. The scoring system tracks several factors:

• Number of bounced checks
• Frequency and severity of overdrafts
• Unpaid account balances
• Length of time since negative events
• Overall banking relationship history

The negative entries on a ChexSystems report age out over time, so your score can improve if you demonstrate responsible banking behavior. Those behaviors can also raise your credit score because traditional banks report to the credit bureaus.

How do I get out of ChexSystems? Step-by-step guide

Getting out of ChexSystems requires hard work, but it’s possible if you use a systematic approach. The following steps represent a typical roadmap to recovery.

1. Request your ChexSystems report: You can request a free copy of your ChexSystems report every twelve months online at ChexSystems.com or by calling (800) 428-9623. You can also mail a request form.
2. Dispute inaccurate information: You can dispute any errors on your report. Common inaccuracies include accounts that aren't yours, debts that have already been settled, or information from identity theft.
3. Pay off outstanding balances: Outstanding debts to banks or creditors will still show up on your report after you pay them off, but it demonstrates good faith when you do it. If you can’t pay in full, negotiate a settlement to pay less than what you owe.
4. Request updates from creditors: Ask for documentation that your debt has been paid when you pay off an outstanding balance. Submit that paperwork to ChexSystems so they can make a note on your account.
5. Be patient for items to age off: ChexSystems maintains records for five years, but the impact on your score diminishes as negative items age. This improves your overall risk and makes it more likely that banks will do business with you.

What is a second-chance checking account?

Second-chance checking accounts are an alternative for people with low ChexSystems scores. They can also be used to improve bad credit. These accounts acknowledge that everyone deserves an opportunity to rebuild their banking relationship, regardless of past mistakes. These accounts typically come with the following restrictions and requirements:

• Monthly maintenance fees
• Minimum balance requirements
• Limited features compared to standard accounts
• May require direct deposit
• Often include financial education components

Second-chance accounts typically come with a specific time frame or “graduation date.” For example, the bank may ask you to responsibly manage your second-chance account for 6-12 months and then offer you a traditional checking account.

What banks offer a second-chance checking account?

Several major banks and credit unions offer second-chance checking programs. These aren’t typically advertised on their websites, so you may need to ask a representative if they offer them. Expect there to be specific criteria for approval.

Credit unions, which are member-owned, often have more flexible policies and may be willing to work with you if you have ChexSystems issues. Many are also community-based, so they take a personal interest in their clients. Ask your friends and neighbors for recommendations.

Alternatives while rebuilding your banking history

It could take some time to improve your ChexSystems score. Thankfully, there are alternatives for conducting your financial affairs. Consider these options:

• Prepaid debit cards: You can find prepaid debit cards at most local pharmacies and variety stores. Check the fees. Some cards are more expensive to load than others.
• Fintech banking solutions: Many digital banks don’t use ChexSystems. They offer mobile banking and direct deposit.
• Secured credit cards: A secured credit card works like a prepaid debit card with the added benefit of credit bureau reporting of your monthly payments.
• Cash management accounts: Some investment firms offer cash management accounts that provide banking-like features without traditional bank requirements.

Conclusion: Start rebuilding your banking future

Being blacklisted by ChexSystems is embarrassing and frustrating, but it’s not a life sentence. Negative marks stay on the report for up to five years, but you can minimize their impact by paying off outstanding balances or opening a second-chance checking account. While you’re waiting for the situation to improve, you can use prepaid debit cards, secured credit cards, or digital banks. Eventually, if you’re responsible, your ChexSystems score will improve.