What Is ChexSystems?

If you've been reported by a bank, you may be rejected for an account

Customer in Retail Banking Counter Window with Bank Teller
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ChexSystems is a specialty consumer reporting agency that banks use to determine the level of risk that a potential customer might present to the bank. It is the banking equivalent of a credit reporting bureau. That is, instead of keeping track of your credit accounts, ChexSystems only keeps track of your deposit accounts at banks and credit unions by maintaining a report of account activities and account closure reasons.

The 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. Understanding what ChexSystems maintains in your report and how to resolve negative items can help you open your next checking account successfully.

In addition to ChexSystems, banks or credit unions may get account holder reports from another consumer reporting agency called Early Warning Service.

What Banks Report to ChexSystems

Your ChexSystems report is distinct from your credit report, which establishes a history of good and bad behavior. Instead, the report contains information that banks report to ChexSystems about problems with account holders.

Examples of negative items about account holders 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.
  • Bounced checks/overdrafts: One mistake likely won't be a problem, but account holders that repeatedly make this same mistake 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 potentially fraudulent activity.
  • Excessive loss of checks/debit cards: A rare lost checkbook or ATM card is not likely to get reported to ChexSystems, but someone who reports these stolen repeatedly could be flagged for potential fraud.
  • 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 item. Failing to address the problem in a reasonable amount of time, however, is likely to get an account holder reported.

ChexSystems also establishes consumer risk scores that are similar to credit scores and range from 100 to 899; the higher the score, the lower the risk.

Information can stay on your ChexSystems report for five years.

Defining Account Abuse

Reporting agencies like ChexSystems exist to protect banks from consumers who abuse bank accounts to the point of creating financial risk for any bank that allows them to open an account. However, what constitutes abuse is not clearly defined, and ChexSystems does not share its methods for scoring with consumers.

In 2015, 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 his account and could not afford the overdraft fee, additional fees could pile up, creating 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. Most major banks ultimately reached agreements with New York in 2015, but consumers still need to be aware that banks are tracking everything they do with their accounts, and negative balances can create major headaches down the road.

Impacts Of Negative Items on Your Report

The most significant outcome of getting reported to ChexSystems is that a bank may deny you if you have one or more negative items on your ChexSystems report. You may have to do 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 the 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, which works like a traditional checking account but usually has higher fees or a higher minimum balance, which help offset the bank's risk of having a customer with previous mistakes. Through these accounts, you can improve your banking track record in hopes of later applying for a traditional checking account.

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.

Obtaining 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. This might include 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 be employed within 60 days.

Request a report from the ChexSystem website. You should receive the report in about five business days, allowing you to see the specific claims made against you. You also can request your score from ChexSystems using the score order form.

Clearing up Issues

Take a proactive approach if you've been reported to ChexSystems. If you observe a problem that you acknowledge to be 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 with the bank.

Once the money is paid off, the bank should report it to ChexSystems so your report can show that the debt is paid off. You also can request a letter stating this 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, and a smaller local bank or credit union may be more open to working with someone who has had issues reported to ChexSystems. 

In contrast, 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 the inaccurate information, usually within 30 days.

Managing Without a Checking Account 

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. But you could make do with a savings account for a short time, bearing in mind that you would be limited to six withdrawals per month.

While addressing your report with ChexSystems, monitor your spending more closely and 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.

Avoid Being Reported

The best way to keep a bank from reporting you to ChexSystems is to manage your bank accounts responsibly. To that end, 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 often happen when people don't track their spending closely enough.
  • 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, depending on the bank.
  • 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. This works best if you communicate with your bank in person at the branch.
  • Formally close accounts. Don't assume that zeroing out your balance is the same as closing it. The account may continue to incur fees or process automatic payments for as long as it is open, leaving you with a negative balance or overdraft fees. Discontinue any automatic payments from the account, and then contact your bank and formally close an account that you no longer need.

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