Checking Accounts for People with Bad Credit

If you’ve ever been denied a bank account, you’ve likely run smack into a wall called ChexSystems. Now most people are completely unaware about what ChexSystems really is and what it really does. But this entity holds the power of your banking in their hands – if you end up on ChexSystems, you will be unable to open a bank account, anywhere.

ChexSystems is an entity that compiles and maintains a list of bad banking clients. ChexSystems is given lists of bad banking clients by every bank or financial institution partnered with them. And these days, that means most of the financial institutions (read banks) out there. In short, if you have your name on the ChexSystems list, you won’t be able to open a checking account or savings account with any financial institution partnered with ChexSystems.

If you are the impatient type and want the quick solution, click here to open a second chance account for people on ChexSystems. If you want to pursue the other, longer, solutions, read on.

How Do I Get My Name On ChexSystems

It’s actually pretty easy to get added to ChexSystems, especially if you have or have had problems with checks. Here are some of the more common reasons:

• Bank Fraud
• Repeatedly cashing bad checks
• Not paying your overdraft fees
• Defaulting on bank loan payments
• Having the Bank close or suspend your checking/savings account

You need to be especially aware when you deal with checks. It’s very easy to have your information forwarded to ChexSystems because of bad checks. Now not everyone cashes bad checks on a regular basis, but it’s actually easy to make a mistake here. For example, you may miscalculate your account balance (or forget you have a check in process and withdraw too much money from your account) when you write a check; later, when the check goes through, you might not have enough to cover the balance. Another situation that sometimes occurs is cashing a check someone gives you, spending the money, only to find out 5 to 10 business days later the check bounced with you liable to repay the money. If you can’t repay it, you’ll end up on chexsystems.

How to Avoid ChexSystems

If you want to avoid getting your name on ChexSystems, here are a few key tips to keep in mind.

• Know Your Account Balance
• Wait till Check Clears Before Spending
• Maintain Positive Account Balance
• Avoid Abandoning Bank Accounts
• Read Monthly Account Statements

Many people find themselves in trouble with ChexSystems because of the way checks are handled by banks. Let’s try and clear this up a bit. When you cash a check, the bank (usually) gives you the amount immediately ,either in cash or deposited to your account. However, just because you “have” the money, does not mean the check has actually cleared. There is anywhere from 1 to 7 business days involved before your bank actually receives the money from the bank the check was signed from. In the case of international checks (such as cashing a US check in Canada), it can take up to two weeks to clear a check. Many people cash a check an assume they have the money. This can lead to some serious problems since you are completely liable for check that does not clear. It’s a good policy to wait until the check clears until you use the money. I know of several specific examples where a person cashed a check given to them for the sale of an item, received the money then used it only to find out the check did not clear. The person was unable to repay the money and the their information was forwarded to ChexSystems and their bank account closed by their bank.

How to Get Around ChexSystems

Now that you are aware of how to avoid chexsystems, what can you actually do if you have your name added to the ChexSystems list? The good news is that all is not lost. There are some legitimate things you can do to get around ChexSystems.

1. Find a bank that does not use chexsystems
2. Open a checking account for bad credit (internet bank account)
3. Use some type of prepaid debt card option
4. Directly challenge ChexSystems to have your name removed from their records
5. Wait it out for 5 years

Let’s look at each of these

Find a Non ChexSystems Bank

The best solution I recommend is to find a non chexsystems bank. Now I wish it was as easy as that statement sounds, but it’s not. The problem you’ll soon find if you look for a banks that do not use chexsystems is that most of the banks are partnered with ChexSystems – or at least most of the major banking institutions which tend to be the banks you commonly see all around you. But it is possible to find non chexsystems banks.  You can:

1. Find a non chexsystems bank list on the web
2. Create your own non chexsystems bank list
3. Approach banks that use chexsystems to see if a credit check can be used instead of a ChexSystems check

If you can find a valid non chexsystems bank list on the web, it might be a good place to start. For people looking for a non chexsystems bank list, you might doing a google search for a current list. To be honest, I don’t want to give any specific recommendations since the list changes so much from month to month. When you view people’s recommendations, take them with a grain of salt — I’ve noticed some of the websites actually trying to SELL lists, which I think is nothing but a scam. So be careful.

For better success, I suggest you find a list of the local banks in your area either through yellow pages or an online local directory and call each of those banks up, asking if they use ChexSystems. You will have to call them up physically as pretty much no bank will publish whether or not they do ChexSystems checks on their websites.

It’s also possible that some of the major banks will use a credit check instead of ChexSystems to screen bank account applicants. If you have bad credit, you are probably out of luck here though.

How to Open a Second Chance Account

Another option is to look at getting an internet bank account. One such recommended account is the Second Chance Account. This is just a fancy name that refers to a type of online bank account created just for people in ChexSystems. It’s basically a guaranteed checking account. You can find  these accounts online. Now there are both Pro’s and Con’s to this choice.

Pros

1. You get a bank account
2. Second Chance Accounts give you all banking transactions you are used to: cashing checks, depositing money, withdrawing money, and you even get a bank card
3. You can bank anywhere (use internet)
4. You are given/sent a physical bank card

Cons

1. Banking fees tend to be higher
2. Not a physical bank

All in all, if you can’t find a non chexsystems bank, then I recommend you do get a second chance bank account as the next best option. It’s certainly the easiest option.

Prepaid Debit/Credit Cards

This is another option that I’ve seen thrown around as a solution. And it is a solution, though you will need to think about whether you want to use one. In essence, these are basically short term solutions. If you need to do any sort of online purchase, but lack a bank account and/or credit card, prepaid credit cards are a good temporary substitute. The way the work is you deposit money on the card; that amount becomes the balance of the card. When the amount is used up, you need to put more money on the card. Note, these are not regular visa or mastercards. You can use them at places that accept major credit cards, but you can’t put a negative balance on them, like you can with a real credit card.

I recommend these cards if you NEED to make online purchases. You can often link them up to your paypal account or directly use them as a safe visa/master card for online purchases.

Of course, you could use these cards like a replacement bank account, but it depends on your habits.

Dispute ChexSystems

This is another option. Now, before you get all excited, let’s lay it all out. Yes, you can challenge ChexSystems to remove your name from their records, but this will involve challenging both your bank and ChexSystems.

Keep in mind I’m not a lawyer so use this information as intended: a rule of thumb guide. I know several people who have fought ChexSystems using this method, but I cannot guarantee it will work for you. But if you look around online, you’ll find people who aggressively pursue ChexSystems usually do end up winning.

The process is actually a bit confusing and involves getting a (free) copy of your chexsystems report from ChexSystems, writing letters to ChexSystems disputing the transaction (which will be listed on your chexsystems report) that got your name added to the list, then sending a letter to the bank this transaction took place at, disputing the authenticity of the transaction.

Sound confusing? It actually is. The whole idea is basically to get the bank to “break” the Fair Credit Act, which is a federal law that governs how credit reporting agencies like ChexSystems operate. Once you give notice of disputes, financial institutions must respond within 30 days. If one of the institutions miss the deadlines, they are breaking the Fair Credit Act and your name must legally be removed. You may find this book VERY helpful if you want to actually fight ChexSystems.

The exact steps on how to get rid of chexsystems won’t be covered in this article, but for more information, I suggest you look at this article about chexsystems removal for the exact steps or for more comprehensive steps, look at the book I recommended.

Wait 5 Years

For most of you, this is really not an option, but if you can live without a bank account for five years, then ChexSystems will, as stipulated by the federal credit regulations, drop your name from their records. You can get a second chance bank account and use this online account for five years or so until you can qualify for a regular checking account.

A Final Note

You may find that by opening an online bank account and using it for a year or so, you may be able to open a regular bank account after starting an internet bank account. You might be able to use such an account as “reference” or proof that you are a good banking client.

Also note that if you can’t open a bank account because of ChexSystems, you might still be able to open a checking account through a credit check – it’s worth asking your bank.

And finally, don’t let ChexSystems stop you from opening a bank account. It’s true that if you have your name in ChexSystems or Telecheck, it’s harder to open an account, but as this article as shown you, there are some concrete solutions you can pursue.