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Bad Credit Mortgage
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What to Watch Out For



Beyond Credit Reporting Agencies—ChexSystems

Even after you’ve addressed what’s on your credit report to the best of your abilities, some people have yet another thing to worry about, and it’s called ChexSystems. ChexSystems is a central clearinghouse of information about how each person handles their checking accounts. If you have ever written a check and had it come back for non-sufficient funds, ChexSystems will have a record of this instance of insolvency.

If you want to open up a checking account at a new bank, because you have moved, or want to take advantage of a special promotion, the new bank will check your ChexSystems report. If you have any negative reports on ChexSystems, most banks will refuse to open an account for you. This creates a major problem for someone looking for a subprime mortgage. Nobody is going to lend you money if you don’t have a bank account.

The negative marks stay in your ChexSystems report for five years, and it’s virtually impossible to get it stricken from the record. Whether your bad check was an attempt at fraud, simple negligence, or an honest mistake, the negative mark remains on your credit report for a significant period of time.

One thing to watch out for is overdrafts. As a result of recent legislation, the “Check 21” Act, all banks now exchange electronic images of checks, instead of the paper checks themselves. Now, a check can clear in a matter of hours, instead of days, even if it originates from out of town. The days of writing a check in the morning and depositing money in the afternoon to cover the negative balance are over.

If you have been reported to ChexSystems, don’t close your existing checking or savings accounts, because you may not be able to open another one. Make any bounced checks good and clear up overdraft fees, and request that an explanation of the situation be added to your ChexSystems file.

If you do find yourself without a bank account, there are still some banks that do not use ChexSystems, so look around, find a bank that is not a member of ChexSystems, and open a new account and keep it in good standing.