What Is ChexSystems, and Can It Help or Hurt You?

ChexSystems assists financial institutions in determining if consumers can open a deposit account with them. Anton_AV/Shutterstock

If you’re opening a new bank account, be prepared to have your ChexSystems report scrutinized. It’s similar to a lender checking your credit report.

ChexSystems assists financial institutions in determining if consumers can open a deposit account with them.

But what exactly is ChexSystems, and how is it used? Like any financial report, ChexSystems can either help or hurt you. If it hurts you, what can you do to discover and fix the problem?

ChexSystems Tracks Deposit Accounts

If you’ve been denied a bank account, it might be because of a negative ChexSystems report. It’s a consumer reporting agency that’s covered by the Fair Credit Reporting Act (FCRA).

ChexSystems is similar to Experian and other credit-reporting agencies, but it only tracks deposit accounts, like checking, at financial institutions.

Banks and credit unions look for irregularities in your previous banking relationships. They use the information to determine if they will let you open an account. Some of the items that they can see on the ChexSystems report are:

• bounced checks and overdrafts
• unpaid negative balance
• number of accounts applied for recently
• account, card, or ATM abuse
• involuntary account closure

Financial institutions all have different criteria as to what activities they will report.

When using ChexSystems to determine if you can open an account, each bank or credit union looks at the report differently.

How ChexSystems Works

The bank or credit union review is similar to applying for a credit card. With a credit card, the issuer typically looks at one or more major reporting bureaus to check your credit. A financial institution does the same thing with ChexSystems.

The bank or credit unions share information. ChexSystems collects this consumer information, creates risk scores, and reports to banks and credit unions when the financial institution considers potential customers.

The risk score, or consumer score, ranges from 100 to 899. The higher the score you have, the better. That’s because a high score indicates you’re a less risky customer.

Individuals Can Freeze or Request a ChexSystems Report

Under the FCRA, ChexSystems must provide individuals with free “consumer disclosure” reports every 12 months or more frequently under certain circumstances. This is located on ChexSystems’ official website. The report will give you the score and context if a bank has rejected you.

The report is mailed, and you should receive it within five business days. Hopefully, there’s not much in the report. ChexSystems mainly focuses on the negative.

If you’re the victim of identity theft, you could put a security freeze on your ChexSystems report. This will prevent thieves from opening bank accounts in your name.

How to Clear Your ChexSystems Report

If you’re having a problem opening a bank or credit union checking account, there might be a problem with your ChexSystems report. And because an item can stay on your report for five years, you’ll want to take action to remove it. There are steps you can take to overcome this problem.

Request a Copy of ChexSystems Report

You must know what’s in the ChexSystems report to clear your name. As mentioned, you are entitled to one free report every 12 months. Submit your request to the ChexSystems website. You can also mail, fax, or phone for a report. The information is on its website.

Once you have the report, review it and check the following:

• name, address, Social Security number, and driver’s license number
• who has access to your information
• look for information on unpaid checks, returned checks, and any security alerts or fraud.

This will let you know if you have any outstanding balances that need to be paid and any money owed due to returned checks. At this point, you will need to pay any outstanding balances.

Dispute Mistakes and Fraudulent Activity

Similar to a consumer credit report, your ChexSystems report could contain some inaccurate or fraudulent information.

If there is inaccurate information or fraud, you can dispute it. There are two ways to dispute: You could go to the company or organization that reported the information to resolve the error, or you could let ChexSystems initiate disputes for you.

The company will take up to 30 days to determine if the information is inaccurate or fraudulent. Once it has completed the investigation, you will be notified by mail.

Contact Financial Institutions to Remove the Information

Reach out to past banks or credit unions and ask them to remove negative history from your ChexSystems report.

You’ll probably need to pay any outstanding balances or arrange debt settlement.

It’s best to make the request in writing via email or postal mail. This gives you a written record as to any agreement.

Do Nothing and Wait for It to Fall Off the Report

You could let time take its course and wait for the item to fall off your ChexSystems report. Remember that this negative information will be in your file for five years.

So, you could wait if you’re near the end of the five years. Just ensure you request a copy of the report from ChexSystems after the five years to check its accuracy.

Financial Institutions Use ChexSystems

Banks and credit unions rely on ChexSystems to vet people who want to open a deposit account. If you have negative items in this report, it could hurt you.

Take the time to request a copy of your ChexSystems report and ensure you don’t have any black marks that could hinder your ability to bank.

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