If you’ve been denied a bank account, ChexSystems could be the reason why. ChexSystems keeps a record of past banking issues like unpaid fees or overdrafts, and many banks use it to screen applicants.
This guide explains what ChexSystems is, why it matters to banks, and what to do if you’re listed. Whether you’re dealing with an existing ChexSystems record or want to avoid future issues, we’ll cover the essentials to help you make informed choices for your banking.
ChexSystems Defined
ChexSystems is a consumer reporting agency that tracks your banking history, specifically any issues that could be a red flag to banks. Regulated by the Fair Credit Reporting Act (FCRA), ChexSystems is not affiliated with any bank directly; it’s owned by Fidelity National Information Services, a subsidiary of eFunds.
Banks rely on ChexSystems reports to decide whether to approve applicants for new accounts. If your record shows unpaid fees, frequent overdrafts, or similar problems, banks that use ChexSystems are likely to decline your application. If your record is clear—and isn’t flagged in other databases like TeleCheck or EWS—your application usually goes through without issues.
How Many Banks Use ChexSystems?
ChexSystems is a standard tool for banks and credit unions, with about 80% of U.S. banks using it to screen new account applicants. More than 100,000 bank branches, including around 9,000 banks nationwide, use ChexSystems to help them avoid high-risk customers.
This prevalence means that if your record is in ChexSystems, you’ll face challenges opening an account at most banks. However, later in this article, we’ll point you toward alternatives that may work for you even if you’re listed. First, let’s dig deeper into why banks use ChexSystems and what factors could get you listed in the first place.
See also: Banks That Don’t Use ChexSystems
Why Banks Use ChexSystems
Banks use ChexSystems as a cost-saving tool to help them avoid risky accounts. When banks participate in ChexSystems, they do two things:
- Screen applicants: Banks check your ChexSystems record when you apply for an account. If your record shows past issues, they’re likely to decline your application to reduce potential losses.
- Share information: Banks also report customer account issues to ChexSystems, adding to a database other banks can access. This system helps banks collectively avoid customers with histories of unpaid fees, overdrafts, or other high-risk behaviors.
If a bank reports you to ChexSystems due to an unpaid balance or frequent overdrafts, that record makes other banks cautious about offering you an account. Data shows that customers with ChexSystems records are statistically more likely to create losses, which is why banks rely on this reporting system to make safer decisions.
How ChexSystems Works
When you apply for a bank account, the bank inputs your personal information—typically your name, address, and Social Security number—into their system. This triggers a ChexSystems check to see if you have a record.
If your record is clear, the application usually proceeds without issue. If you do have a record, the bank will see details about past account closures, like unpaid overdrafts or suspected fraud. These records often list a specific reason, such as non-sufficient funds or check fraud.
While you can ask for information about why you’re declined, bank employees aren’t always able to share details directly. Instead, you can check your ChexSystems report to understand what’s affecting your application and address any issues.
What’s Included in Your ChexSystems Report
A ChexSystems report gives banks more than just a “yes” or “no” answer on your banking history. Here’s what it typically includes:
- Recent Inquiries: Any recent checks from other banks are visible, which may raise concerns if there are too many in a short time.
- Personal Information: Your name, address, and Social Security number, along with details on when your Social Security number was issued, are provided for verification.
- Potential Red Flags: If there are discrepancies in your information or frequent inquiries, banks may interpret this as a risk. For instance, multiple inquiries can suggest potential check-kiting schemes, so it’s best to limit applications to banks that are likely to accept you.
ChexSystems’ Recommendation to Banks
After reviewing your report, ChexSystems provides a recommendation to the bank, which may include:
- Approval: If your report is clear or contains minor issues, approval is likely.
- Denial: Severe issues like unpaid balances or fraud can lead to a summary denial.
- Request for additional information: Some cases may require more details from you to complete the decision.
Keep in mind that bank employees usually won’t share specifics from your ChexSystems report. If you’re denied, reviewing your own report directly can help you identify and address any issues.
Common Reasons You Might Be Listed in ChexSystems
Banks are primarily concerned with behaviors that could lead to financial losses. Here are some common issues that can result in a ChexSystems record:
- Unpaid overdrafts: Leaving overdrafts unpaid is a major red flag for banks.
- Fraudulent check deposits: Attempting to deposit checks fraudulently can lead to an immediate report.
- Unpaid fees: Accumulated bank fees left unpaid may trigger a ChexSystems listing.
- Non-sufficient funds (NSF): Repeated NSF incidents signal a risk for further account issues.
- Debit card abuse: Misuse of a debit card, such as unauthorized transactions, raises concerns.
- Uncollectible checks: Depositing checks that can’t be processed or collected is another red flag.
- Undisclosed violations: ChexSystems may include “Undisclosed” issues, covering various other infractions.
This list isn’t exhaustive, and many types of incidents can lead to a ChexSystems record. Generally, if you haven’t committed any banking offenses, you won’t have a record with ChexSystems.
What Is a ChexSystems Score, and How Does It Affect You?
Your ChexSystems score, ranging from 100 to 899, reflects how likely you are to responsibly manage a bank account. Unlike a credit score, which focuses on borrowing and repayment, this score specifically assesses your banking history. A higher score suggests to banks that you’re a low-risk customer, while a lower score can make it harder to open new accounts.
Improving Your ChexSystems Score
If you’re aiming to boost your score, try these steps:
- Clear outstanding debts: Any unpaid fees or balances listed in your ChexSystems record can weigh down your score. Reaching out to previous banks to settle these amounts can make a positive difference.
- Practice responsible banking: Consistent positive banking behavior, like avoiding overdrafts and maintaining steady account balances, helps gradually improve your score.
- Review your report for accuracy: Errors can sometimes occur on ChexSystems reports, which could impact your score unfairly. If you spot any inaccuracies, file a dispute with ChexSystems to have them corrected.
Improving your ChexSystems score takes time but can ultimately open up more options for managing your finances and qualifying for new accounts.
Is ChexSystems Fair?
ChexSystems helps banks reduce financial risks, but some consumer advocates see it as overly strict. Even minor issues, like a single overdraft, can create a ChexSystems record that lasts up to five years, making it hard for individuals to access banking services.
Other reporting systems, like TeleCheck and Early Warning Services (EWS), track check-writing and account misuse but tend to focus on recent, high-risk behavior. ChexSystems, in contrast, keeps records longer and updates them less frequently, which can be challenging for consumers who have since corrected their past mistakes.
Some experts suggest reforms that would allow ChexSystems to update records when accounts are resolved, making it easier for consumers to restore their banking options. For now, staying aware of your ChexSystems record is key to managing your banking access.
How ChexSystems Helps Prevent Identity Theft
Identity theft continues to be a serious concern, with major data breaches like the 2017 Equifax hack compromising the personal information of millions. Thieves may wait months or even years before using stolen information, catching many consumers off guard.
ChexSystems plays a role in preventing identity theft by verifying the information provided when someone opens a new account. If there are discrepancies, the system flags them, potentially preventing fraudulent accounts from being created.
In some cases, you might be listed in ChexSystems if a fraudster has already used your identity without your knowledge. Being denied for a bank account could be your first indication of identity theft, allowing you to take steps to secure your information. For further assistance, ChexSystems offers resources on their website to help you address identity theft concerns.
What Can You Do If You Are Listed in ChexSystems?
So now you know what ChexSystems is and how it works. What can you do if you do find out you are listed in it?
At this point, you should contact ChexSystems directly and find out what your ChexSystems record says. If you wish, you can attempt to dispute ChexSystems as well, though it is a challenging process. Find out how to dispute ChexSystems.
Meanwhile, you do not need to live without a bank account. There are plenty of banks accounts for bad credit and banks that don’t use ChexSystems. While there are no guarantees, there is an excellent chance that one of these non-ChexSystems banks will allow you to open an account. If so, you can start banking as usual, even with the black mark on your record.
There are also several second chance banks that offer people a checking or savings account even if they are in ChexSystems. You can see the list of second chance checking accounts here.
Frequently Asked Questions
Can a bank remove you from ChexSystems?
Yes, a bank can request to remove you from ChexSystems if the information reported was incorrect or if you’ve settled any debts or issues with the bank. However, if the information is accurate, it typically remains on your ChexSystems file for up to five years, unless the bank decides to remove it as a goodwill gesture.
Does ChexSystems affect your credit?
ChexSystems itself does not affect your credit scores directly. It is a system used by banks to understand your banking history. However, if you have unpaid debts from bank accounts that get reported to a credit bureau, those could affect your credit scores.
Is ChexSystems a credit bureau?
No, ChexSystems is not a credit bureau. It is a consumer reporting agency that provides reports to financial institutions about consumers’ checking and savings account activity. Credit bureaus, on the other hand, report on credit history and creditworthiness. However, ChexSystems is regulated by the FCRA, in the same manner as the three major credit bureaus, Equifax, Experian, and TransUnion are.
Who has access to my ChexSystems consumer file?
Financial institutions that are members of ChexSystems have access to your consumer file. This typically includes banks and credit unions, which use this information to decide on opening new accounts. Access is regulated under the Fair Credit Reporting Act (FCRA).
Why did ChexSystems deny my application or decline my request for an account?
If ChexSystems declined your application or request for an account, it’s likely due to negative items in your consumer file, such as unpaid debts, bounced checks, or frequent overdrafts. Banks use this information to assess the risk of offering you an account.
How can I see what is in my file?
You are entitled to a free copy of your ChexSystems report once every 12 months or if you have been denied a bank account based on information in your report. You can request this report through the ChexSystems website or by calling their customer service.
What type of information could be included in my consumer file?
Your consumer file may include personal information, account closures, unpaid negative balances, bounced checks, fraudulent activity, and inquiries made by banks into your account history.
How long does the closed account stay on ChexSystems file?
Information about closed accounts can stay on your ChexSystems file for up to five years. However, the exact time may vary depending on the nature of the record.
If I pay what is owed on my account, will the information be removed from my ChexSystems report?
Paying off what you owe does not automatically remove the information from your ChexSystems report. However, it may change the status of the entry to “Paid.” Some banks may consider this favorably, but the record itself may remain for up to five years.
How do I dispute information?
If you believe any information in your ChexSystems report is inaccurate, you have the right to dispute it. You can file a dispute directly with ChexSystems through their website, by mail, or over the phone. ChexSystems is required to investigate the dispute within 30 days.
