Does Being on Chexystems Give You Bad Credit?

If you've been turned down for a new checking account or savings account lately with your bank, odds are your name might have turned up in the Chexsystems database. Regardless of how high your credit score is or how much money you have to deposit, getting a checking account while listed in Chexsystems is challenging since you've been flagged as a high risk for all banks and credit unions. Being in Chexystems, however, does not necessarily mean you have bad credit. 

Banks are all about minimizing losses and maximizing profits. Chexsystems makes this process even easier by providing banks with a database containing the names and personal information about all individuals who left bank debts unpaid in the past. 

While banks lend money to consumers for personal loans, auto loans, mortgages, etc., Chexsystems only lists those whose debts were directly related to irresponsible behavior with their bank accounts. For example, overdraft fees you left unpaid or bad checks you wrote to merchants could get you listed in Chexsystems. Your name will not be inserted, however, unless your bank closes your account for leaving the debt unpaid. Thus, you have plenty of time to avoid ending up a banking outcast. 

Once your name appears in the Chexystems database, it will remain there for up to five years. Fortunately, you can dispute these entries in much the same way that you would dispute standard credit reports. Although your Chexsystems record does not impact your ability to get a new credit card, a new job or housing the way a standard credit report does, it still falls under the jurisdiction of the Fair Credit Reporting Act – which gives all consumers the ability to dispute debt records with both the credit bureau reporting the account and the original creditor.

When you discover that your name is in the Chexsystems database, the very first thing you should do is pay off the checking account debt that originally landed you there. Paying the bank does not result in Chexsystems removing your name, and it won't help you get a new checking account. It will, however, work in your favor with some banks. If the bank happens to use a second-chance checking program, you must pay off your old, unpaid debt before you become eligible for a new bank account. 

Although Chexsystems is technically a credit bureau, its reports are limited only to banks and checking account behavior. Because the credit bureaus do not share information with one another, having a debt in Chexystems will not necessarily impact your credit report and cause your credit score to drop.

Keep in mind, however, that unless you pay off the debt quickly, the bank will likely sell the debt to a collection agency. The collection agency can and will report you to the three major credit bureaus – damaging your credit. 

The odds are against you being able to get a new checking account with a standard brick-and-mortar bank while your name remains in the Chexsystems database. Some banks offer second chance checking programs specifically for individuals with bad credit or a bad banking history. These programs allow you limited benefits but grant you access to a new checking account – regardless of your history with debt. 

Yet another option you may consider is an online checking account. Online checking accounts often do not hold consumers to the same strict standards that brick-and-mortar banks do, and its much easier to obtain an online checking account with bad credit or a debt in Chexystems than it is to convince local banks to accept you as a new client.