By LOUIS DENICOLA
If you're having trouble opening a checking account, you might be tempted to blame your credit. However, a person with an excellent credit score could have trouble opening a checking account, while someone with a low credit score might have no trouble at all. Learn more about why this may be the case.
Is your credit score connected to your checking account?
The short answer is usually "no."
Your credit report contains information about how you use credit lines, such as credit cards and loans, not your checking or savings accounts. Banks and credit unions generally don't even report information related to your checking account, such as the account's balance or debit card use, to the credit bureaus. Therefore, closing a checking account or frequently using your debit card may have no impact on your credit score.
However, there are a few circumstances when using or applying for a checking account can hurt your credit.
- Unpaid debts sent to collections: If you owe a bank or credit union, perhaps from unpaid fees or overdrafts, and the debt is sent to a collections agency, the account in collections may be reported to the credit bureaus and may hurt your credit. Even if an account with a negative balance is closed, the money is still owed to the bank or credit union.
- Hard inquiries: Banks and credit unions may review your credit report when you apply for a new checking account. This may result in a hard inquiry, which can have a negative impact on your credit score for up to a year.
- Underlying causes: There may be times when how you use your checking account can lead to negative marks on your credit report. For example, if you try to make a loan payment with a check and there isn't enough money in your account, the check could bounce and you may wind up with a late payment on the loan.
Note that opening a new checking account doesn't always result in a hard inquiry. Kristopher Dahl of Wells Fargo says the bank uses soft credit inquiries -- which don't affect your credit -- to screen deposit account applicants. It usually makes a hard inquiry when someone applies for overdraft protection and wants to link a new credit product (such as a credit card), but there generally aren't any additional inquiries to connect an existing credit line or savings account.
Since there are only a few potential ties between your credit and your checking account, if your application is denied, it's likely because the financial institution found something concerning on a report detailing how you've handled checking and savings accounts in the past.
What is ChexSystems?
ChexSystems is a nationwide specialty consumer reporting agency (CRA) that collects and tracks data related to checking accounts, similar to how Experian, TransUnion and Equifax collect and track data on people's usage of credit. There are other CRAs that provide bank account screening services, such as Early Warning Services, but most banks in the U.S. use ChexSystems.
Unlike your credit report, a ChexSystems report primarily tracks negative activity. For example, the report doesn't show when you write a check that clears, but it may show activity such as bounced checks, hard inquiries and account closures. Negative marks on a joint bank account, or an account you cosigned on, may also appear on your report.
The ChexSystems report also shows account applications and closures and a record of checks ordered in the last five years. Personal identifiers, such as your address, driver's license number or Social Security number may also show up on the report.
You may not have a ChexSystems report if you don't have any negative information related to a checking account.
Some financial institutions use a ChexSystems consumer score, ranging from a low of 100 to an excellent score of 899, to screen applicants. Like a credit score, it shows potential risk. However, your credit score and ChexSystems scores aren't connected.
You can request a free copy of your ChexSystems report by phone, mail, fax or online.
What are your options if the bank or credit union denies your checking account application?
ChexSystems says information remains on your report for up to five years. If you believe there are mistakes on your report or derogatory marks due to fraud, you can file a dispute with ChexSystems and the financial institution that reported the activity.
Don't give up if a bank or credit union denies your application due to a legitimate negative mark, either. Financial institutions use different criteria when screening applicants, and you may qualify for an account elsewhere.
Alternatively, you may want to look for a second-chance checking account, offered by some banks and credit unions to those who have had trouble with a checking account in the past. You may need to complete a financial education program to qualify, and the account could have a monthly fee or monthly minimum balance requirement.
You can also look for alternative types of checking accounts that prohibit account holders from writing checks, making online bill payments or overdrawing the account.
Checking account activity can influence a credit score in a few situations, but, in general, the two aren't directly related. If you're having trouble opening a standard checking account, consider looking into a second-chance or alternative checking account. You may also request a copy of your ChexSystems report and dispute any errors you find.
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