You probably already know that carrying a high balance on your credit cards and missing payments can have a very negative effect on your credit score. But did you know there's also an organization that keeps track of people who write bad checks?
Chexsystems is a network of financial institutions that shares information about customers who have committed check fraud or habitually overdraft their checking accounts. Think of it as a close cousin to the credit information bureaus.
While bouncing checks probably won't have an impact on your credit score, getting your name in the Chexsystems database can make it nearly impossible for you to open a new bank account. The banking industry loses billions of dollars every year because of check fraud or abuse of personal checks, and they don't want it to continue.
80% of all banks and credit unions in the United States are members of the Chexsystems network. That means if your checking account is closed because of overdrafts or check fraud, financial institutions all over the country will have access to records indicating your financial history is questionable.
The usual way you'll know if you've been entered in the Chexsystems database is if you are denied during the process of opening a new bank account. You shouldn't have to worry if you've only bounced a few checks. Most banks don't submit your name until the problems get fairly serious.
If you do end up with a negative report on Chexsystems, it will remain active for five years.
However it is important to note that it is the individual financial institutions which decide whether you will be allowed to open an account. Chexsystems simply keeps track of the information and shares it with members of the network.
You can request a consumer report from Chexsystems to find out if there is a specific reason why your name was put into the record. If you think your name was added erroneously, you can dispute the possible mistake when you Contact Chexsystems.
In some cases, you can get your name removed from the database sooner than the normal five years. What you need to do is take a class - typically called Get Checking. These classes are six hours long, last just one day, and are often held by the university extension program in your area. You will need to pay off any overdrafts and fees you owe to financial institutions before receiving a certificate of completion.
The best way to stay off the Chexsystems list is to always properly manage your personal finances. When you order checks from Check Advantage you'll receive a free check register to help you keep track of your budget.
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