ChexSystems is a specialty consumer reporting agency that banks use to determine the level of risk they're taking by letting you open a bank account. It is the banking equivalent of a credit reporting bureau.
Banks can use the information in your ChexSystems report to approve or deny you an account. Despite its importance, fewer people are aware of ChexSystems than of standard credit reporting bureaus.
Learn what's included in your ChexSystems report and how to fix issues that you might discover.
Definition and Examples of ChexSystems
ChexSystems is a consumer reporting agency that tracks checking and savings accounts. Instead of keeping track of your credit accounts, ChexSystems tracks your deposit accounts at banks and credit unions. These are then put into a report with your account activities and reasons why your accounts closed. Banks use these reports to help them assess what kind of financial risk you are as a customer.
The ChexSystems agency is affiliated with Fidelity National Information Services, which provides banking software and other technological support for financial institutions. Services provided by ChexSystems fall under the regulation of the Fair Credit Reporting Act (FCRA).
When you apply for a new checking account, banks and credit unions reference your ChexSystems report. If you're having trouble opening a checking account, it could be because of negative information on your report.
In addition to ChexSystems, banks or credit unions may get account holder reports from another consumer reporting agency called Early Warning Service.
In 2014, New York Attorney General Eric Schneiderman challenged banks to change the way they screened potential customers, arguing that low-income individuals were more likely to generate negative reports, even for relatively minor mistakes. For example, if an account holder overdrew their account and could not afford the overdraft fee, additional fees could pile up. This would create a negative balance in the hundreds of dollars for what might have started out as an overdraft of only a few dollars.
Banks argued that account holders who repeatedly accrued negative balances unfairly benefited from overdrawn accounts. Many major banks ultimately reached agreements with New York in 2015, but these cases illustrate the challenges consumers face in getting fair access to banking services.
You should be aware that banks are tracking everything you do with your accounts. Negative balances can create major headaches down the road if you ever need to open a new account.
How Does ChexSystems Work?
Your ChexSystems report contains information that banks report to ChexSystems about problems with any of your bank accounts or payment history. Negative items that banks may report to ChexSystems include:
- Accounts closed for cause: A bank will close an account if it has been used to commit fraud or if the account holder continuously writes bad checks.
- Suspected fraud or identity theft: Using the account for any kind of criminal activity is a major red flag.
- Unpaid negative balances: Again, a single mistake or a negative balance for a day or two is not likely to result in a negative report. Failing to address the problem in a reasonable amount of time, however, is likely to get you reported.
- Bounced checks/overdrafts: One mistake likely won't be a problem, but if you repeatedly make this same mistake, you are likely to be reported to ChexSystems.
- Debit card/ATM abuse: This includes fraudulent activity such as depositing empty envelopes when making a deposit at an ATM.
- Excessive account applications: Applying for multiple accounts in a short period of time can be a red flag for fraud.
- Excessive loss of checks/debit cards: A rare lost checkbook or ATM card is not likely to get reported to ChexSystems. But if you report these as stolen repeatedly, your account could be flagged for potential fraud.
ChexSystems also establishes consumer risk scores that are similar to credit scores. ChexSystems scores range from 100 to 899. The higher the score, the lower the risk.
What Do I Do If I've Been Denied a Checking Account?
The most significant result of getting reported to ChexSystems is that a bank may refuse to let you open an account with it if you have one or more negative items on your ChexSystems report. You may have to manage without a checking account while taking other actions to show that you are more responsible with your money.
However, every bank has different rules about how items in your ChexSystems report affect your ability to open an account. For example, some banks may still allow you to open an account if you have proof that you have paid off a balance that you owed to another bank.
Other banks might offer you a "second-chance" account. This works like a traditional checking account. Usually, though, it will have higher fees or a higher minimum balance, which help offset the bank's risk of your previous mistakes repeating. Through these accounts, you can improve your banking track record. Once your banking history has improved, you can apply again for a traditional checking account.
Usually, second-chance accounts don't use ChexSystems to qualify customers, so you can't be denied for them for having too many negative items on your ChexSystems report.
If you are denied a bank account, the next step to take is to get a copy of your ChexSystems report to see what is listed there, dispute any errors, and start repairing your banking history.
How To Get Your ChexSystems Report
You can request a copy of your report once every 12 months or if you have been denied an account in the last 60 days. Under the FCRA, you are entitled to a free disclosure if:
- You had adverse action taken against you, such as a bank denying your account application.
- You are a victim of identity theft with a fraud alert on your file.
- Your report has erroneous data stemming from fraud.
- You are on public assistance.
- You are unemployed but plan to seek employment within 60 days.
Request a report online directly from ChexSystems. You should receive the report in about five business days. This will allow you to see the specific claims made against you.
How To Fix Your ChexSystems Report
Take a proactive approach if you've been reported to ChexSystems. If you see a reported item that you know is accurate, contact the bank immediately to begin repairing the problem. If you cannot pay off all of the money you owe to the bank at once, you might be able to set up a payment plan.
Once the money is paid off, the bank should report it to ChexSystems. Then your report can show that the debt is paid off. You also can request a letter stating that you have paid off your balance and take it to the bank where you are trying to open an account. A bank may be willing to work with you at this point. A smaller, local bank or credit union also may be more open to working with someone who has had issues reported to ChexSystems.
If you believe that a negative item was reported in error, contact ChexSystems to initiate a dispute. Under the FCRA, the consumer reporting agency has a duty to correct or remove inaccurate information, usually within 30 days.
An account denial and dispute with ChexSystems may result in a period of time when you have no checking account. It can be challenging to get by without using a bank for electronic access to your money.
While addressing your report with ChexSystems, monitor your spending more closely. Consider paying bills with money orders or prepaid credit cards. It won't be easy, but once you repair your reputation as a deposit account holder, you can qualify for traditional checking accounts with favorable terms.
How To Avoid Being Reported to ChexSystems
The best way to keep a bank from reporting you to ChexSystems is to manage your bank accounts responsibly. There are several small actions you can take to prevent getting dinged by a bank.
- Balance your checking account regularly: Stick to a written budget to avoid overspending your balance in the future. Overdrafts are more likely to happen when you don't track your spending closely enough.
- Make a genuine effort to bring your account back into the positive: If you have a negative account balance you can't pay right away, some banks might work with you as long as you contact them in a timely manner.
- Fully close accounts: Zeroing out your balance isn't the same as closing it. An account may keep incurring fees or process automatic payments for as long as it is open, leaving you with a negative balance or overdraft fees. Cancel any automatic payments. Then contact your bank and formally close the account.
- Allow checks to clear before spending the balance: Making purchases against checks that later bounce could cause your account to go into overdraft. To avoid this, give checks a minimum of three to five days to clear after you deposit them.
- ChexSystems is a consumer reporting agency that banks use to assess the riskiness of potential customers.
- Banks can report activity such as overdrawn accounts, bounced checks, or unpaid balances. This report could prevent you from opening a new bank account.
- You can improve your report over time by avoiding any problems with your checking and savings accounts.
- You can request a free copy of your ChexSystems report once every 12 months—or when you're denied an account—and dispute any errors you find.
Frequently Asked Questions (FAQs)
Is ChexSystems the same as a credit report?
Your ChexSystems report is distinct from your credit report. Your credit report is a history of how you have handled debt, such as loans or credit cards. ChexSystems reports on problems or areas of concern in your banking history.
What is account abuse in ChexSystems?
ChexSystems is meant to protect banks from consumers who abuse bank accounts to the point of creating financial risk for banks. However, what constitutes abuse is not clearly defined, and ChexSystems does not share its methods for scoring with consumers. This can make it difficult to challenge or correct a record of account abuse in your ChexSystems report.
What does a ChexSystems security freeze do?
Placing a security freeze on your account prevents ChexSystems from releasing any information in your file without your permission. This prevents loans, credit, and other banking services from being approved in your name. It may delay some banking services, but it can also be a helpful tool for preventing fraud.