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There’s nothing quite as indulgent as sitting back on your couch, remote control in hand, knowing that your favorite restaurant meal is about to show up at your doorstep. But food delivery can also, unfortunately, lead to racking up credit card debt.

One solution is to use a checking account to pay for food delivery services. Although not every platform allows you to pay directly from your bank account, there are often payment options that still let you tap the funds in your checking account. Learn more about these options below.

What Is Food Delivery?

Third-party food delivery services have revolutionized at-home dining. Gone are the days when pizza was the only option for ordering in. Now, you can get just about any meal your heart desires with the tap of a finger.

Third-party delivery platforms connect hungry diners with nearly endless restaurant options. The meals are typically delivered by gig-economy workers who earn income via these apps.

Some of the most popular food delivery services include:

•   Grubhub

•   Uber Eats

•   DoorDash

•   Favor

There may be other food delivery services available in your area, including restaurants that still deliver directly. However, those options may or may not allow you to use your checking account as payment.

Using Checking Accounts for Payment

Not every food delivery service lets you link your banking details directly. You may need to do a bit of research to find one that accepts a checking account. That said, most major food delivery services accept debit cards, which work similarly to checking account payments.

In addition, these food delivery apps typically offer the opportunity to pay through a third-party service such as PayPal or Google Pay, which in turn makes bank account payment possible. In addition to PayPal and Google Pay, some of the payment apps that are commonly accepted include Venmo, Apple Pay, and Amazon Pay.

Linking Your Bank Account to a Third-Party App

For the apps that do allow you to use a bank account, linking the account is usually fairly straightforward. Some payment apps use third-party platforms, such as Stripe and Plaid, to securely connect to your bank account using your regular login credentials. The data transferred is encrypted, and you can disconnect linked accounts at any time.

Other payment apps let you manually link your bank account using details including the routing number and account number. However, you should only provide your details to certified and secure parties. If you’re using a lesser-known food delivery or payment app, research it first to ensure it’s legit before you enter your banking details.

Recommended: Checking Account vs. Debit Card: What’s the Difference?

Benefits of Checking Account Payments

Why pay for your next plate of pad thai or other food delivery with your checking account? Consider the following benefits.

No Credit Card Fees for Merchants

While this one may not benefit you directly, you may save a small business money, which can feel like a small good deed. Although food delivery services have helped connect more restaurants to more at-home diners, they usually charge the restaurant a commission fee, which can eat into already-slim profit margins.

Credit cards also charge merchants a fee that can be as high as 3.5% per transaction. Using your checking account may offer more direct support to your favorite restaurants.

Easier to Budget Food Spending

Sometimes, the money we put on a credit card feels less real, which is one reason it can be so easy to spiral into credit card debt. But when money is coming directly out of your checking account, it feels more tangible. Over time, using your checking account can make it easier to track how much you’re really spending on food delivery each month — and stick to a budget.

May Qualify for Cash Back/Rewards

In some cases, delivery apps or your bank may offer cash back or rewards for payments made with a checking account (or debit card). Check with your bank, and review offers from the delivery apps you use for further details.

Recommended: Checking vs. Savings Accounts

Potential Risks and Drawbacks

Although there are many upsides to using a checking account to pay for your food delivery, there are some drawbacks to consider as well.

Overdraft Fees From Erroneous Charges

When you’re drawing directly from your bank account, instead of charging on a credit card, you’re at more risk of overdrafting (spending more than you have in your account). Doing so can rack up costly overdraft fees, even if you’re careful. Sometimes, a transaction goes through more than once, which is an error that can be easier to rectify when using a credit card.

Less Fraud Protection vs Credit Cards

One good thing about credit cards: They often come with robust fraud protection and easy ways to dispute charges. Many issuers will stop a charge they feel is suspicious until they get confirmation from you that it’s legitimate. Checking account payments don’t generally have this technology.

Difficulty Disputing or Reversing Charges

As mentioned, no matter the reason for an erroneous or fraudulent charge, it can be more difficult to reverse because it’s basically cash (as opposed to credit). You can check directly with your bank to learn about their process for such reversals.

Tips for Safe Checking Account Use

If you are going to use your checking account to pay for your food deliveries (or anything else), follow these tips to help ensure you do so safely.

Monitor Transactions Closely

Whether or not you use it for food delivery payments, checking your bank account regularly is always a good idea because it helps you catch any fraudulent transactions and address them quickly. You’ll also know how much money you have available.

Adjust Spending Limits and Alerts

Some banks offer built-in spending limits or alerts when your account drops below a certain dollar threshold. It can be easy to overdo it with food deliveries, so if you link your checking account, consider adjusting those limits and alerts.

Consider Using a Prepaid Card

If you’re trying to avoid credit card debt by sticking to a budget but don’t want to link your checking account, consider using a prepaid card instead. This way, you know exactly how much you will spend on food delivery. You also avoid the risks associated with linking your bank account.

Alternatives to Checking Payments

As mentioned above, if the delivery service you’re using doesn’t allow you to link your bank account directly, you can likely link a digital payment platform, such as PayPal, Cash App, or Venmo, which can handle direct-from-bank transfers. Most apps also let you use a debit card instead of a credit card.

Of course, if you go the old-school way and order directly from a restaurant, you may still be able to pay with plain old cash.

The Takeaway

Ordering food delivery is a favorite convenience of the digital age, and you can enjoy it without using your credit card. You can often link a checking account or debit card to pay for your order by pulling money directly from your account. You might also use a digital payment service linked to your checking account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Can I earn rewards with checking account payments?

It’s rare to find cash back rewards or other incentives linked to payments that come directly from a checking account. However, using a debit card is very similar to paying directly from your bank account, and many do offer rewards. Check with your financial institution about any rewards available.

What if a delivery never arrives?

If your meal is marked delivered but you don’t find it, you should be able to get help from the food delivery service itself. Most apps offer a way to contact their customer support team right from the interface.

Do all food delivery apps accept checking?

Unfortunately, not all food delivery apps allow you to link your checking account directly. However, virtually all of them allow you to use a debit card instead of a credit card, which works similarly. In addition, many apps let you link a third-party platform such as Venmo or Cash App, which can handle bank account payments.

Photo credit: iStock/FG Trade

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A sweep account automatically transfers, or “sweeps,” money from one account into another, with the goal of earning a higher rate of return. This is usually done to prevent excess cash from sitting in a low-rate account, but sweep accounts can also be used to pay off loans.

Sweep accounts are set up to make these transfers automatically, usually at the close of each business day. If you have several different accounts with a particular bank or brokerage, you may be able to take advantage of a sweep account — and it may be worth considering.

What Is a Sweep Account?

A sweep account is typically used when you hold more than one account (e.g., personal checking and savings accounts or different brokerage or business accounts) at a single institution. To use a sweep account, you set a threshold, such as a certain balance in a checking account, and the sweep account will automatically move funds above that threshold into another account that earns a higher return (typically a money market mutual fund).

This helps to ensure that you don’t keep cash parked in low-interest accounts and that you’re maximizing the total return across all of your accounts.

Ways to Use a Sweep Account

As an example of how someone might use a sweep account, you may keep a predetermined amount in the checking account to pay your bills. Then, at the end of each business day, any excess money is swept into a savings account or money market fund that earns a higher interest rate.

A sweep account may also be used at a brokerage, where your contributions or deposits (as well as dividends or profits from selling securities) are transferred to an investment account like an IRA, which stands for individual retirement account, or a taxable account at regular intervals.

Benefits of a Sweep Account

Using a sweep account can offer a couple of benefits. It allows you to keep a set amount of money in your checking account, say, to make sure you have sufficient funds to pay your bills without overdrawing the account. It also allows you to take any funds above that amount and put them in an account with a higher return.

You can also set up a sweep account when you open a brokerage account. This can also be valuable because different investments may generate returns or dividends at different times, and the sweep account makes sure the money doesn’t sit in cash but gets reinvested and put to work.

How Do Sweep Accounts Work?

One of the golden rules of investing is to try to maximize your returns, subject to your risk tolerance. A sweep account can be a great tool to help you do that because it helps to overcome inertia, a common behavioral finance hurdle for investors.

Using a sweep account allows you to set an amount of money that you always want to keep in your main account. Then, at the close of each business day, any extra money is swept into a savings, money market fund, or brokerage account that may generate higher returns. Depending on where you want to sweep the funds, they can remain fairly liquid and accessible, or they can be part of a longer-term tax-efficient investing strategy.

You can also set up a sweep account to help pay off a loan or a line of credit — another potential use of your spare cash. Beware of fees, though. Some sweep accounts are complimentary, but some aren’t. You don’t want the cost of maintaining a sweep account to eat up the extra interest or returns you hope to earn.

Note, too, that there are no particular tax implications for using a sweep account.

Personal Sweeps vs Business Sweeps

Sweep accounts that are linked to your personal accounts work more or less the same as sweep accounts tied to business accounts. They both enable the swift transfer of funds from a low-interest-bearing account to one that potentially generates some income. This can be important for individual investors.

A sweep account is also important for businesses, particularly small businesses that have multiple accounts to handle various payments and cash flows. By setting up a sweep system, it’s possible to manage different income streams and achieve more growth by investing the cash.

You can also sweep money back into the main account if cash is needed to cover expenses, but sometimes this process takes more time. As a business owner, be sure to clarify what the holding periods might be.

💡 Quick Tip: Want a simple way to save more every day? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.

Types of Sweep Accounts

There are a number of different types of sweep accounts. Be sure to inquire at your bank or brokerage about the kinds of sweep accounts they offer, and ask about the terms and any fees that might apply.

•   Individual sweep account: This is typically used by a brokerage to store funds from a client until they decide how to invest the money.

•   Loan payback sweep account: Instead of sweeping the money into a money market or savings account, you can sweep excess funds to help pay off a loan.

•   Business sweep account: This allows you to sweep excess money from business accounts.

•   External sweep account: Some institutions can sweep cash into deposit accounts externally, which can increase the amount of Federal Deposit Insurance Corporation (FDIC) insurance coverage ($250,000 per account).

Pros of Sweep Accounts

As discussed, there are several upsides to sweep accounts, which can include:

•   Helping you earn higher interest rates or possibly investment returns

•   Occurring automatically at the close of each business day, so you don’t have to think about it

•   Possibly being FDIC-insured or protected by the Securities Investor Protection Corporation (SIPC)

Cons of Sweep Accounts

There are also cons to sweep accounts.

•   Your bank or brokerage may charge additional fees for using a sweep account, which might cancel out the interest earned.

•   If your money is swept into a brokerage account, it won’t be FDIC-insured (but it could be covered by the SIPC).

The Takeaway

A sweep account can be a great way to actively increase the amount of interest that you earn if you have multiple accounts. When you use a sweep account, you set a threshold amount that you want to keep in a specific account. Then, at the close of each business day, any excess funds are swept into an account that pays a higher interest rate (e.g., a money market fund).

Sweep accounts offer investors a way to leverage their spare cash. Although returns can vary, and with brokerage accounts, there’s always the risk of loss, sweep accounts provide an important function by putting your cash to work.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Is a sweep account good?

Sweep accounts can be useful if you have multiple accounts with different cash flows. They help ensure your spare cash is always earning the most it can.

Can you lose money in a sweep account?

Not really. A sweep account generally doesn’t hold money itself; it just sweeps funds from one account to another. So a sweep account itself won’t lose money, though it’s possible to lose money, depending on where you sweep the money to.

What is the benefit of a sweep account?

The main benefit of a sweep account is the ability to automatically control how much money is in your various accounts. With this type of account, you can set a minimum threshold for your checking account, for example, and automatically sweep any excess funds into a money market fund at the end of each day.

Photo credit: iStock/Viktor_Gladkov

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A confirmed letter of credit can be an important document to those who are launching or running a business, particularly those engaging in international trade. These letters are used to help protect both the buyer and the seller in a business-to-business transaction by adding an extra guarantee that the seller will get paid. It essentially means that a second bank will pay the seller if the first bank fails to do so, which can inspire confidence and allow a deal to go through.

Here’s a closer look at what a confirmed letter of credit is, how it works, and its pros and cons.

What Is a Confirmed Letter of Credit?

Also known as a confirmed LC, a confirmed letter of credit is an additional guarantee for a payment by a secondary bank. It states that this additional bank will be responsible for a payment being on time and in full, even if the buyer doesn’t meet their contractual obligations and the first bank (called the issuing bank) defaults on the payment. You might think of it as a kind of insurance policy or Plan B if the initial bank responsible for payment fails to do its job.

This type of document can be common in international trade, such as transactions between export and import businesses. A guarantee is often required to conduct international transactions or when a vendor or seller has reason to doubt the first bank’s creditworthiness.

💡 Quick Tip: If your checking account doesn’t offer decent rates, why not apply for an online checking account with SoFi to earn 0.50% APY. That’s 7x the national checking account average.

How Confirmed Letters of Credit Work

Confirmed letters of credit, which are signed documents that promise to pay a certain sum to a specified person, are commonly used as negotiable instruments. They can be especially valuable in international business transactions that involve a significant payment amount for goods or services. Since the letter acts as a guaranteed payment, it may take the place of a request for advance payment.

To get a regular letter of credit, the buyer will likely need to submit required documents to the first bank, including proof that certain steps have been completed. Then the bank will send appropriate documents to the seller’s bank. This paperwork shares detailed instructions on the terms and conditions and how payment should be made. Depending on the agreement between the buyer and the seller, payment may be made immediately or at an agreed-upon date.

Once the letter of credit has been issued, the buyer may need the backing of a second bank or a confirmed letter of credit. Worth noting: A fee is likely to be involved. The exact amount of this fee may depend on how good (or questionable) the first bank’s credit is. This letter usually reflects the first letter of credit and uses the same terms.

A confirmed letter of credit can protect both parties because it decreases the risk of default for the vendor or seller. Additionally, it ensures that payment is only made if all the terms are met. It can be a step to building good credit when doing a deal with a new client. It can also be helpful for a business that’s just starting out and making connections, building contacts, and monitoring its credit.

Parties Involved in a Confirmed Letter of Credit

Here’s a list of all the parties typically involved in a confirmed letter of credit.

•   Buyer or applicant: This is the party who is requesting the letter of credit and who will pay the seller.

•   Beneficiary or seller: This is the party who is selling goods or services and the one who receives payment (the payee).

•   Issuing bank: This is usually a bank where the buyer already has a business bank account. It’s the one that issues the original letter of credit.

•   Confirming bank: This is the second bank that will guarantee the funds to the seller once the terms in the letter of credit are met. In some cases, the confirming bank is from the seller’s home country (this may be called a correspondent bank) or is a bank that the seller already works with.

Recommended: Guide to Irrevocable Letters of Credit (ILOC)

Confirmed Letter of Credit Example

Let’s look at a fictional example of how a confirmed letter of credit could work. Say that Pauline’s Paper Goods receives an order for 100,000 pallets of customized notebooks from JessCo, a stationery company. Pauline’s Paper Goods has never worked with JessCo before and isn’t sure that this company has the means to pay for the goods. Maybe Pauline’s Paper Goods worries that JessCo doesn’t have what is considered good credit.

In order to prevent nonpayment after the notebooks are produced and shipped off to the buyer, Pauline’s Paper Goods structures an agreement that JessCo needs to pay with a confirmed letter of credit on the date the shipment leaves its warehouse.

If JessCo agrees, it would start applying for a letter of credit at its bank or depository institution in the U.S., where it has its checking account. If the bank requires it, the company needs to provide proof that it has the funds available or will apply for financing.

As soon as the issuing bank creates the letter of credit, JessCo then applies for a confirmed letter of credit with another bank, possibly the seller’s bank. When Pauline’s Paper Goods receives the completed, confirmed letter, it manufactures and ships the customized notebooks. Once Pauline’s Paper Goods provides proof of when and how the goods were shipped, the guaranteed funds are released.

Recommended: Business vs Personal Checking Account: What’s the Difference?

Confirmed vs Unconfirmed Letters of Credit

If you’re conducting international business, you’ll probably hear the terms confirmed and unconfirmed letters of credit. An unconfirmed letter of credit is simply a letter of credit issued by a bank. A confirmed letter of credit, as we’ve described above, is backed by two banks. Like a bank guarantee, a confirmed letter of credit can foster trust if, say, there’s reason to worry that the payment won’t be made.

Here’s a look at some other differences between a confirmed vs. an unconfirmed letter or credit.

•   Guaranteed payment: With an unconfirmed letter of credit, the issuing chartered bank or financial institution guarantees payment. With a confirmed letter of credit, however, two banks confirm payment.

•   Cost: Unconfirmed letters of credit tend to cost less than confirmed letters of credit.

•   Changes: The buyer is allowed to make changes to an unconfirmed letter of credit. With a confirmed letter of credit, both banks can modify the document.

•   Issuance: The seller only has to approach one bank for an unconfirmed letter of credit but needs to contact two banks with a confirmed letter of credit.

Recommended: Guide to a Commercial Letter of Credit

Advantages of Confirmed Letters of Credit

Confirmed letters of credit can have several benefits for sellers, particularly those doing business internationally and wanting to ensure smooth transactions. These advantages include:

•   Protection for both the buyer and seller

•   An extra layer of confidence for the seller

•   A lower risk of default thanks to a reputable second bank (perhaps serving as a guarantor if the first bank has a low credit rating)

•   Enhanced buyer credibility, which may increase the odds that a seller will do business with them

Disadvantages of Confirmed Letters of Credit

While confirmed letters of credit can be very valuable in business, there are a couple of downsides to recognize. Disadvantages of confirmed letters of credit include:

•   It may take longer to get a confirmed letter of credit since an additional bank is involved.

•   Bank fees may be higher than with an unconfirmed letter of credit.

The Takeaway

A confirmed letter of credit can be a valuable business tool, especially when conducting international business. For those importing or exporting, the letter will guarantee payment for goods a company is supplying if the buyer and the buyer’s bank can’t complete the deal. Getting a confirmed letter of credit can cost more and take longer compared to an unconfirmed letter of credit, but the effort may be worth it. It can secure a transaction and open doors to doing business with new customers in a way that communicates confidence.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What is an unconfirmed letter of credit?

An unconfirmed letter of credit is a letter of credit that’s only been issued by one bank, known as the issuing bank. In a transaction, the buyer requests an unconfirmed letter of credit to guarantee funds will be paid on time to the seller by the bank.

Is an unconfirmed LC safe?

Yes, an unconfirmed letter of credit (LC) is safe because there is a guarantee or confirmation from one bank that payment will be made. Assuming that the issuing bank has a high credit rating, the seller can feel confident that the funds will be paid once all the conditions in the contract have been met. If the seller wants an additional layer of security, they may request a confirmed letter of credit, which means a second bank will provide payment if the first one fails to do so.

What is the risk of an unconfirmed LC?

The risk of an unconfirmed letter of credit (LC) is that the issuing bank won’t have the funds to pay the seller. That means that even if the seller completes their end of the contract, they risk losing out on funds if the issuing bank doesn’t fulfill its promise.

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It may seem as if having a bank account is a given in life, but actually, it’s not. Some people get rejected and have to work hard (really hard) to attain that privilege. There’s a situation called being blacklisted by banks, and it’s a tough one to overcome.

Granted, for many, having enough money for a deposit and a valid ID is all that’s needed to open a bank account.

But if you’ve had problems with a bank account before and your screening report reveals those issues, you could be denied. But all is not lost: Take a deep breath and read on.

What Does It Mean to Be on the ChexSystems Blacklist?

Unless you’ve had trouble opening a bank account, it’s possible you’ve never even heard of ChexSystems. Think of ChexSystems as being akin to the credit reporting agencies that determine your all-important FICO® credit score, except that instead of tracking how well you manage debt, the way Equifax®, Experian®, and TransUnion® do, ChexSystems records how well you manage your banking life.

Do you have a history of bouncing checks, overdrawing your account, failing to pay bank fees, engaging in suspicious activity, or having your account closed by a financial institution? If so, it’s likely that ChexSystems knows about and is keeping track of those negative activities. Most banks use these agencies’ screening reports in deciding whether to approve a consumer’s application to open a checking or savings account.

Along with your report, banks may also use your ChexSystems Consumer Score to assess your potential risk as a new or returning customer. A score can range from 100-899, and a higher score signifies lower risk.

There’s no official point or score at which consumers are automatically blacklisted by ChexSystems or the banks that use its services. Each financial institution determines independently how much risk is acceptable when deciding to open a new account for a client. But if your score is in the lower range, you should be aware that your application could be refused. The reason why: You don’t appear to be someone who will use your bank accounts responsibly.

If you’re planning to open an account and you’re wondering what your current ChexSystems Consumer Score is, you can request it on the ChexSystems website. You can get one free report per year.

What to Do If You Are Blacklisted

So let’s say you’ve applied for a bank account and got rejected. That can be an upsetting feeling. After all, bank accounts, especially checking accounts, are the hub of most people’s financial lives. Paychecks are deposited there, and bills and other expenses are paid from that same account. You may wonder how you will ever get a bank account after being blacklisted.

Here’s the good news: If a financial institution denies your request to open an account, there are a few things you may be able to do to improve your standing. Here are four steps to take.

1. Request a Consumer Disclosure Report

The bank or credit union that declined to open an account for you should inform you which reporting agency (ChexSystems or another) generated the report it used when considering your application. You can then contact that agency by phone, mail, or online to request a free copy of the report and review exactly what’s on your record.

2. Report Any Discrepancies

Once you receive a copy of your file, you should be able to see which banks or credit unions provided negative information about you to the reporting agency. If the report doesn’t match up to your experiences, there may have been an error, or the problem could be connected to identity theft. Either way, it’s a good idea to check your own records for any discrepancies and be prepared to deal with anything you uncover.

3. Dispute Any Errors Found

Consumer reporting agencies must comply with the federal Fair Credit Reporting Act. That means they are required to ensure the information they provide is as accurate as possible. What’s more, by law, they can’t include certain types of negative information that’s more than seven years old. ChexSystems typically keeps negative information on a report for five years.

If you feel your banking report has errors, is incomplete, or that some negative information is out of date, your next move may be to file a dispute. The Consumer Financial Protection Bureau (CFPB) provides sample letters for contacting both the financial institution that supplied the incorrect data and the agency that included it in its report. Or, you can file your dispute on the ChexSystems website.

Under the Fair Credit Reporting Act, ChexSystems must verify the negative information within 30 days or delete it from your ChexSystems report.

You may also want to get an updated credit report from one or all three of the major credit bureaus to see if there are similar problems there. You can request those reports for free at Annualcreditreport.com. If you find anything amiss, you can dispute those credit report errors.

To be clear, your ChexSystems score is not the same as the FICO credit score lenders look at when you apply for a credit card or loan. And the banking reports ChexSystems provides do not include the same information as credit reports. But if there’s inaccurate information in a report about your checking account activity, there may be similar issues with your credit reports — especially if you’ve been the victim of identity theft. If you can catch discrepancies early, you may be able to head off future questions about your creditworthiness.

4. Pay Off Outstanding Debts and Fees

Of course, there’s the possibility that the black marks on your report are valid. Maybe you bailed on an account that was overdrawn or had another negative situation. If the information on your report was accurate, you still may be able to improve your chances of opening an account. You’ll probably want to show that you’re trying to rectify past problems.

Check with the bank that declined your recent application for an account. A banker there may have some suggestions. It could help, for example, if you pay off any old fees you still owe to ChexSystems’ member institutions. Once those past bad debts are taken care of, you can ask the bank or credit union that provided the negative information to update that item on your ChexSystems report.

You still may have to wait five years for the negative information to be completely removed from your report. But ultimately, it’s up to each individual bank — not ChexSystems — to decide whether a customer’s application will be approved or denied. If the bank sees you’re making an effort to right old wrongs, it may reconsider your application. That’s why connecting with a banker to explain what steps you’re taking can be a move in the right direction.

How to Avoid Being Blacklisted by ChexSystems

Obviously, the best way to avoid getting a low ChexSystems Consumer Score or a negative report is to avoid the activities that could make you a riskier bank customer. If you want to be a good checking and savings account customer, avoid things like:

•   Bouncing checks or running up too many overdraft fees

•   Having an account closed involuntarily

•   Committing ATM or debit card abuse

•   Being suspected of fraud or illegal activity

•   Opening and closing multiple accounts in a short period of time

But there are other steps you can take to further secure your finances and your financial reputation. Consider these options as well to boost your standing as a banking customer. They can help you avoid being blacklisted.

Monitor Your Financial Health

If there’s information on a ChexSystems report that you weren’t aware of, you may have been the victim of identity theft. Reviewing your accounts regularly could help you clear up problems faster. Even if you don’t have this kind of fraudulent activity on your record, it’s still a good idea to stay on top of your financial profile. Here are some key steps:

•   It’s a good idea to request and scrutinize your free ChexSystems report once every 12 months.

•   You should also review your credit reports from the three major credit bureaus at least once a year through AnnualCreditReport.com. Again, your goal is to make sure that everything is up to date and accurate and that no fraud or identity theft occurs.

•   It’s also a good idea to regularly check your bank account and credit card statements to make sure there aren’t any transactions you aren’t aware of. Many financial institutions offer online tools and mobile apps that can make tracking your accounts easy and convenient.

•   You may want to set up a low balance alert for your checking account. That way, you’ll get a text or email when your balance reaches a certain threshold, and you’ll know to stop using the account until you make a deposit. That can help avoid overdrawing your account and bouncing checks and/or triggering fees. You might also consider setting up bank alerts for unusual activity, overdrafts, and new log-ins.

Find an Alternative to a Traditional Banking Account

If you’ve been rejected and are worried that you might be unable to open a bank account, don’t give up hope. If your ChexSystems report seems to be blocking you from getting an account, you may have other options.

•   Some banks and credit unions offer what are called second chance checking accounts. These typically offer fewer features and higher fees than regular bank accounts to customers who have been blocked by a ChexSystems report or score.

•   Some banks and credit unions don’t use ChexSystems when making decisions on account applications. You might be able to enjoy the same benefits as other account holders, with low or no fees, if you choose to do business with one of those financial institutions. A little online research should show you which banks don’t depend upon ChexSystems.

By investing a bit of time and energy, you should be able to find an account that suits your needs, even if you’ve been blacklisted.

The Takeaway

If a bank denied your application for a new checking or savings account, it could be that you were blacklisted due to negative information on your ChexSystems report.

You still have options, though. If the information on your report is wrong or more than seven years old, you can dispute the negative information and have your report corrected. And if it turns out the negative information is true, you can take steps to remedy the situation and possibly open an account elsewhere. The convenience of a bank account may well be within reach.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Can I open a bank account if I’m blacklisted?

You may have a few options if you’ve been blocked from opening an account. You could try to fix your old problems and ask the bank to reconsider, or you could sign up for a second chance account that’s geared to people with a negative banking history. Another option is to look for a bank that doesn’t base its decisions about customer accounts on ChexSystems reports.

How long are you blacklisted from banks?

Every bank has its own policies when it comes to determining a customer’s account eligibility. But if you have negative items on a ChexSystems report that could cause a bank to decline your account application, you can expect that information to stay on your report for up to five years.

What does it mean when your bank account is blacklisted?

If someone tells you that you have a blacklisted bank account, it generally means you have enough negative information on your ChexSystems report or a low enough ChexSystems score that the bank sees you as a risk. They can, therefore, decline to offer you an account.

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A debit memorandum is a notice issued to customers from a bank or a business informing them of an adjustment being made to their account balance. In all cases, a debit memo means that money will be taken out of an account to cover a fee or an underpayment.

Debit memos occur both in personal banking — such as after a bounced check or for an insufficient funds fee — but are also common in business-to-business (B2B) transactions. They’re often used to correct an erroneous invoice or reflect changing market prices. Understanding how debit memos work can help you stay on top of your money.

What Is a Debit Memo?

A debit memo is a notice from a financial institution or a business to a customer that there’s a forthcoming adjustment (a debit or withdrawal of funds) to their account. You may also hear it referred to as a debit memorandum or debit note.

A debit memo might show up on your bank statement for an atypical fee, such as for ordering checks or overdrafting. Normal checking account debits, such as debit card purchases or cashed checks, aren’t classified as debit memos and won’t appear on a bank statement as such.

In B2B transactions, a company may issue a debit memo after invoicing if there was something incorrect on the original invoice. Typically, this happens if the customer was undercharged.

💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.

How Does a Debit Memorandum Work?

In banking, if you’ve incurred a fee, such as an overdraft fee, the bank will add a debit memorandum to your monthly bank statement. If you use a digital banking app, you can often see this debit note in real time — no need to wait for a paper statement in the mail.

Just make sure you’ve turned on account alerts to track deposits, withdrawals, and other important account changes.

Banks can’t just assess fees at random. Federal law requires banks to disclose any fees they might charge for a bank account. Before opening a bank account online or in person, ask to see a detailed fee structure. If you don’t think a debit memo on your bank statement is correct, contact customer service to address the issue.

In business, debit memos work a little differently. The company acting as the seller might issue a debit memo after sending an incorrect invoice. Doing so notifies the buying company that its accounts payable will increase to rectify the unpaid amount.

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Real-Life Examples of a Debit Memorandum

Here are two real-life examples of bank memos, one for regular consumer checking accounts and one for a B2B transaction.

Banking Scenario

If you write a check to a friend but don’t have enough money in your checking account to cover it, the check will bounce when your friend goes to deposit or cash it. Every time you bounce a check, your bank will likely charge you a fee. Rather than sending you an invoice, the bank will directly debit the amount from your account.

Even if you have no money in your account, you can go into a negative balance. This debit will show up on your bank statement as a debit memo.

Business Scenario

In this example, your company has done construction work for a local business. However, when sending the invoice to the business, you accidentally left off the labor cost and additional materials required for one portion of the project, equivalent to $5,000.

To resolve this problem, you can issue a debit memo to the local business. This signals that you’ll be recording an increase in your accounts receivable of $5,000. In turn, the local business will then need to increase the amount in its accounts payable by $5,000 to cover the additional fee. To avoid delays or disputes, the debit note should include adequate information to explain the adjustment in the final cost.

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Types of Debit Memos?

Three situations commonly call for debit memos: bank transactions, incremental billing, and internal offset. Here, learn about all three types of debit memos to understand their key differences.

Bank Transactions

As an individual consumer, you’ll most likely encounter a debit memo as a bank transaction. If you incur a fee through your bank, such as for printing checks or overdraft fees, the bank will debit your account directly to cover that fee. This will show up on your bank statement as a transaction labeled as a debit memo or debit note.

Incremental Billing

If you’re involved in billing for B2B transactions, you may encounter debit memos. A seller might issue a debit memo to a buyer for several reasons:

•   If there were errors on the original invoice

•   If the buyer paid upfront, but the project costs were higher than expected

•   If the cost of materials or labor increased during the course of the project

•   If the scope of the work changed and resulted in higher costs

Internal Offset

If a customer’s account has a credit balance of insubstantial value, a company can issue a debit memo to clear out the balance. If the balance is large enough to be considered material (i.e., a significant amount of money), the company would typically refund the customer rather than issue a debit memo.

Debit vs Credit Memorandum: What’s the Difference?

Credit memos are essentially the opposite of debit memos. In banking, credit memos alert customers of an increase in their account balance. In business, a seller might issue a credit balance to alert the buyer that the original invoice was too high, thus reducing the amount the buyer owes.

Notification to Customers

When a bank issues a debit memo, it typically notifies the customer of the debit on the bank statement. Similarly, a credit memo will show up on a customer’s bank statement.

As a customer, you may receive paper or electronic statements. If you bank online, you can typically check your transactions at any time on the app or website. When you receive notification of a debit, you’ll want to take it into account when balancing your bank account.

Invoicing

As a seller issuing a debit memo, you’re notifying the buyer that you’re increasing the final invoice amount. A credit memo does the opposite: It notifies the buyer that you’re reducing the final invoice amount.

Recording the Reduction

In the event of a debit memo, the seller will record an increase in the accounts receivable amount, and the buyer must record the larger debit in their accounts payable ledger. For a credit memo, the seller records a decrease in the accounts receivable amount, while the buyer records a smaller debit from accounts payable.

Debit: Remit Payment vs Credit: Future Purchases

To clarify a bit more, debits are amounts owed that must be remitted to settle an account. Credits are money that an individual or business is owed, perhaps reflecting an overpayment, which may be applied to future purchases.

Here’s a summary:

Recommended: Credit vs Debit Memo

Managing a Bank Account

When you open a checking account or savings account, it’s important to understand the fee structure so that you aren’t surprised by a debit memo on your monthly account statement. You can ask for a fee structure upon opening a new account, and monitor your statements closely to understand what fees are being assessed.

As best as you can, it is a good idea to check your checking account for low balances and set up alerts for all transactions. It can also be wise to activate fraud alerts to help manage your banking security and protection.

The Takeaway

Debit memorandums alert banking customers that funds will be withdrawn from their accounts, often to cover fees incurred. This will lower an account balance, so it’s important to be aware of these changes and make sure your account doesn’t go into overdraft.

Looking for the right banking partner? See what SoFi offers.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Do you pay a debit memo?

A debit memo serves as a notification of a debit from your account. The bank will automatically debit your account. In a business-to-business (B2B) scenario, a debit memo is a form or document that notifies the buyer that the seller has increased the accounts receivable amount.

Who issues a debit memo?

A bank or credit union may issue a debit memo to a personal or company account for specific fees, including bounced checks, insufficient funds, or printing checks. A business may issue a debit memo to another business to correct an invoice that results in underpayment. A business can also use a debit memorandum internally to offset a credit balance in a customer account.

Is a debit memo the same as an invoice?

A debit memo isn’t the same as an invoice. Rather, businesses often issue debit memos as a correction to an initial invoice, typically when they’ve mistakenly undercharged a customer.

Photo credit: iStock/Vadym Pastukh

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