Tags: credit, FICO
A large number of checking and deposit account holders face credit problems from time to time. Often, the issue is beyond their control or due to an error, but this may not stop them from getting into trouble with their banks. Unfortunately, a mistake or bad experience can impact your financial health far more than expected, which is why care must be taken to avoid things like ending up on ChexSystems.
What is ChexSystems and Why it Needs to Be Avoided
ChexSystems is a debit history database that is used by banks during risk assessment. The database contains information that details the misuse of a checking or savings account, and will show things such as:
- Bounced checks
- Check fraud
- Fees associated with the above
- The closing of an account with a negative balance (whether by you or your financial institution)
- Balances still owed etc.
This information remains available for up to five years and could prevent you from being able to open another checking or deposit account. Incidentally, the database does not include FICO scores or other pieces of information that may otherwise paint a good picture of you as a consumer. As a result, one mishap could be enough to cause rejection regardless of your overall financial health.
Best Practices to Avoid Being on ChexSystems
While some banks have implemented their own “best practices” to reduce the number of people who get listed in the database needlessly, it is still up to consumers to do their part in avoiding the situation. As such, please follow these five tips so there is no reason to fix the problem after it occurs. Also, the actions that result in being listed does not have to be deliberate, so remember to always exercise caution when dealing with your credit and debit history.
1) Keep a close watch on your balance at all times: It is important to balance your check book regularly and to only spend what you have in the account. Overdraft fees and payments that are declined due to insufficient funds can work against you.
2) Formally close accounts: Far too many account holders remove the money from their accounts then wait for them to close automatically. Believe it or not, this counts against you in several ways. Among them is that fact that the dormant account could incur fees for having the zero balance. This means it could end up with a negative balance at the time it is closed and then end up in the database for future banks to see.
3) Comb through your statements carefully to spot errors or fraud: It is no secret that banks make mistakes or that fraud committed by someone else can ruin a person’s credit score. So, why would you leave anything to chance when dealing with your debit account? Exercise vigilance when handling statements so issues can be spotted and dealt with promptly.
4) Do not hesitate to report loss, theft, or misuse of your account: A few minutes is all it takes to ruin your credit history. The same holds true for your debit history. Therefore, you must report all cases of lost or misused cards, stolen checks or stolen debit cards immediately.
5) Stop automatic payments before closing accounts or switching banks: While it may not seem fair, automatic payments can continue after you stop using an account. When this happens, fees for bounced payments or overdrafts can accumulate which will then result in a negative balance. What this means is that an account that you handled responsibly for years could end up on ChexSystems for misuse after you close it.
Points to Also Note
1) It is possible to get your ChexSystems report if you feel you were denied a new account because of a past banking experience.
2) You can also request the report to check before doing business.
Finally, while it is up to your old bank to remove you before the five years, settling or disputing all owed balances can work in your favor. This is so because some banks will disregard the report if the amount has been paid off, or you have been in the database for a requisite period of time. Note as well that falling victim to bogus credit repair schemes can get you ChexSystems, so be weary of these.