So now you are probably wondering what ChexSystems is and what you can do about it. Will you ever be able to open a bank account? How did you end up in ChexSystems in the first place? Why do banks use ChexSystems? What is it for? Let’s break it down.
ChexSystems Defined
ChexSystems is a consumer reporting agency and check verification service regulated by the Fair Credit Reporting Act (FCRA). It is run independently of any financial institution and is owned by a subsidiary of eFunds called Fidelity National Information Services.
Banks rely on ChexSystems to provide them with information they can use to pre-screen banking customers. Those who appear in the ChexSystems list are typically rejected. Those who do not (and do not appear in Telecheck or EWS or similar databases) are usually accepted.
How Many Banks Use ChexSystems?
Just how prevalent is ChexSystems? In the United States alone, 80% of banks and credit unions rely on the system to screen applicants. According to eFunds, more than 100,000 bank branches belonging to more than 9,000 banks throughout the US use ChexSystems.
So, that means that you cannot just walk into any bank or credit union and expect to be able to open a checking or savings account if you’re in ChexSystems. In fact, odds are about eight out of ten that you will be rejected out of hand.
Later on in this article, we will point you toward some resources to help you get started with banking right now, even if your name is in ChexSystems. But first, let’s learn more about ChexSystems itself—how banks benefit from using it, how it works, and why you may be listed in it.
See also: Banks That Don’t Use ChexSystems
Why Banks Use ChexSystems
The reason banks use ChexSystems is simple, and that is to save money. Banks which use ChexSystems do two things:
- They use the system to screen applicants.
- They provide information which is aggregated through the system, which other banks can use.
In essence, if a bank that uses ChexSystems has had an unfortunate experience with you, that may get you listed in ChexSystems. That means that another bank that uses ChexSystems will be leery of giving you a checking account. Statistical data has shown that doing so makes it more likely that they will lose money than if you were not listed in ChexSystems.
Mishaps Which May Cause a Customer to Be Listed in ChexSystems
What kinds of monetary losses are banks worried about? To shed some light on this, let’s take a look at some common reasons why customers may find their names in ChexSystems:
- Unpaid overdrafts
- Fraudulent check deposits
- Unpaid fees
- Losses through non-sufficient funds
- Debit card abuse
- Depositing uncollectible checks
- “Undisclosed”
This is not an extensive list. There are numerous reasons why a customer might have a ChexSystems record. Indeed, “Undisclosed” is an umbrella term which essentially stands for “Other.” All kinds of miscellaneous violations could be filed under “Undisclosed.”
Take note that customers are only listed in ChexSystems if they have committed some kind of offense. Those who haven’t, do not have a ChexSystems record.
If You have a ChexSystems Record, ChexSystems Has Assigned You a Score
If you are listed in ChexSystems, you have what is known as a “ChexSystems score.” This is not the same thing as your credit score, though many consumers confuse the two. Your score with ChexSystems could range anywhere from 100-899. If you have a high score, you are considered a lower-risk customer. If you have a low score, that means ChexSystems perceives you as a particularly risky consumer.
Learn more about ChexSystems scores.
Is ChexSystems Really Fair?
In some situations, yes; in others, definitely not. In any case, you now should have a pretty solid grasp on what ChexSystems is, why banks use it, and how it sometimes saves them money.
However, often, it just inconveniences legit banking customers. It’s regrettable that a customer who makes a simple overdraft mistake should be banned from opening a bank account for the same length of time as a fraudster. But, unfortunately, it happens frequently.
On a more positive note, ChexSystems does help protect consumers from identity theft,
Identity Theft
Identity theft is a mounting problem these days. With the 2017 Equifax hack, the information of more than 143 million consumers in the US alone was compromised.
If you are one of the consumers who was affected by that breach—or any other—that is not something you need to worry about for just a few weeks or months. It remains a threat for years. Identity thieves often wait quite some time to act. Often, the initial incident has been forgotten by the consumer by the time their information is used by fraudsters.
ChexSystems actually helps to prevent identity theft crimes. When a customer attempts to open an account, the system takes a look at the information they provide to make sure that there are no discrepancies. If any are found, it results in that customer being declined.
Furthermore, there is a chance that you could be listed in ChexSystems because your identity already was stolen and used successfully by a fraudster.
If that is the case, you may find out when you are declined for a bank account. This may be the first hint you have that your identity has been used for illegal activities, so that gives you a chance to do something about it. ChexSystems itself provides some useful information and tips on identity theft on the official ChexSystems website.
So despite its hassles, ChexSystems is an important institution, both for banks and for customers. So keep that in mind when dealing with it.
How ChexSystems Works
Here is what happens when you walk into a bank branch and attempt to open a bank account.
First, the bank employee inputs your information into their system. Usually, you will be asked to give our first and last name, your street address, and your social security number. This launches a check to see if you are listed in ChexSystems.
Next, the system will come back and report on whether you have a record. If you do not and there are no issues with your personal information, you should be good to go.
If, however, you do have a record, they will take a closer look. There are various types of ChexSystems records, but most fall into one of the following categories:
- Checking and savings accounts closed by other banks or credit unions
- Checking and savings accounts closed by the same bank or credit union where you are applying
The employee will also see a specific reason listed, for example, non-sufficient funds issues or some form of check fraud. Some people believe that bank workers are provided no details by ChexSystems, but this is a misconception.
You can ask the employee for details, but do not expect an answer. Bank employees are trained not to give out the details, but to ask you for them. That way, you can check your report against their record to attempt to determine what really may have happened. This may affect their decision.
What’s on Your ChexSystems Report
Your ChexSystems report then provides some additional information to the bank, including:
- Any other recent ChexSystems inquiries from other financial institutions on the same consumer.
- Personal information (i.e., name, address, and social security number) used for those recent inquiries.
- Details on the consumer’s social security number state and issue date.
Naturally, if there are any discrepancies in personal information, that is going to raise a red flag.
It is also something of a red flag if there are other recent inquiries on file at other financial institutions. Why? You may just want to open a checking account. However, to the bank, it looks like you might be planning on check kiting or similar fraudulent schemes that require multiple accounts.
This is actually a good reason not to go from bank to bank attempting to open an account. Instead, you should apply at banks that are likely to accept you (more on that at the bottom of this article).
ChexSystems Recommendation
ChexSystems will then provide a recommendation based on all of this data. The system may recommend any of the following:
- Approve your new account.
- Summarily denial.
- Ask you to provide additional information or clarification so that a decision can be reached.
Remember, if you are denied for a bank account, the employee will not tell you the specific reason. This does not mean that they did not look at the details of your ChexSystems report. It simply means they are forbidden from conveying that information to you to let you use it to manipulate them.
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.
