Landing in the ChexSystems database, whether it's your fault or not, can add a few hassles to your financial life. Many banks, even those that issue secured credit cards, require you to have an active checking account to facilitate your security deposit and your regular monthly payment.
You've probably heard of the three major American credit reporting agencies: TransUnion, Equifax and Experian. But you'll probably only hear about ChexSystems if you land on their list of those who have had checking accounts closed due to multiple non-sufficient funds transactions. Bounce too many checks, and your bank or credit union adds your name to the ChexSystems database. It stays there for five years, even if you deposit enough cash into your account to cover the cost of bounced checks and service fees.
During that time, you'll get rejected for new checking accounts by most banks, since roughly 4 in 5 financial institutions use ChexSystems as part of the background checks on new applicants. Like the credit bureaus, ChexSystems must offer you a free copy of your report at least once every year. You can use that information to dispute your inclusion on their list if your account closure was the result of fraud or identity theft.
If you're trying to rebuild your financial life, a secured credit card can quickly boost your credit score. However, you'll need an existing checking account to qualify for cards from most reputable lenders. Although credit card issuers don't publicly disclose the tools they use to accept or deny an application, members of our online credit card forum and similar bulletin boards elsewhere report success getting secured credit cards from a handful of lenders:
- Capital One. Capital One uses a different kind of credit risk model than other banks, and it runs its own savings bank to handle security deposits.
- Navy Federal Credit Union. This member-driven lender offers "second chance" credit card and checking accounts for military families.
You may qualify for a wider range of secured credit cards after opening a checking account at an institution willing to look past your inclusion on the ChexSystems list. The University of Missouri coordinates a nationwide "Get Checking" program among regional banks that will open second-chance checking accounts for applicants who complete the school's financial literacy course. The university offers a "self-study" version of its course to consumers nationwide for a nominal fee.