What is ChexSystems?

Most consumers aren’t familiar with ChexSystems until they’re denied a new bank account or a merchant declines to accept their check. Briefly, ChexSystems is a consumer reporting agency (CRA) that tracks your checking and savings account activity. It’s similar to credit reporting agencies Equifax, Experian and TransUnion, which collect data on consumers’ loan and credit card history. A ChexSystems record doesn’t affect your credit score and doesn’t factor in to banks’ decisions to extend credit, but it can impact your ability to open a bank account or write checks. And in today’s wired world, having access to a checking account for a host of services is critical.

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When you apply for a bank account, most financial institutions will screen your application by checking your banking history. About 80 percent of all banks in the U.S. use ChexSystems data for this process and the company holds records on more than 300 million consumers. Some of the rest get similar reports from Early Warning Systems or other specialty CRAs, while others do not check your banking history at all. A rejection of your application to open an account probably means the bank found adverse information in your banking history as reported by ChexSystems.

Are You In ChexSystems and What’s In Your Report?

ChexSystems is not responsible for the decision made by banks to deny you a bank account; however, the information reported by banks and credit unions and stored by ChexSystems can result in a denial of a bank account.

The following information may be stored in your ChexSystems report:

  • Paid and Unpaid insufficient fund items (“NSF”)
  • Excessive “NSF” charges, even though you may have covered all of those charges
  • Checking account habits that your bank may consider negative
  • Any kind of Fraud
  • Uncollected overdrafts, ATM transactions or automatic payments the bank paid
  • Abuse of Debit Card, Savings Account or ATM Card
  • Violation of any banking rules and regulations
  • Opening an account with false information
  • Delinquent or derogatory credit behavior
  • Excessive ChexSystems Inquiries

There may be additional reasons a bank reports their customers to ChexSystems but the above list represents the most common reasons consumers end up in ChexSystems.

How Long Do You Stay In ChexSystems?

According to ChexSystems’ current policy, each entry in your report will be deleted after five years unless noted otherwise in the table above.

ChexSystems isn’t required to delete accurately reported information, but every bank is responsible for updating the payment status on a delinquent account that’s been settled. So even if you pay off an outstanding debt, the status of listing can change, but it won’t be removed from your record until five years have passed. However, ChexSystems can voluntarily wipe out a listing sooner at its discretion.

What Is A ChexSystems Score?

ChexSystems calculates a score of your banking history that they call the QualiFile Consumer Score. An increasing number of banks now use this score to evaluate your risk as a prospective customer. The score ranges from 100 to 899, with a higher score indicating a better risk profile.

But don’t confuse your ChexSystems score with your credit score. The two figures are completely independent of each other and are, for the most part, used for different purposes. But, depending on the creditor or lender, it is possible for your ChexSystems score to affect your ability to obtain a loan or credit. In addition, data from your credit report may be used as factors to calculate your ChexSystems Score.

How ChexSystems Affects Existing Accounts

Another important tip to be aware of with ChexSystems is that current bank customers are not necessarily immune to implications from ChexSystems reporting. For example, if an individual has accounts at multiple financial institutions and just one account is in bad standing, he or she could wake up to the shocking news that other banks have frozen these accounts.

Some banks and credit unions also do what is called account sweeping. They will routinely recheck patrons to see if they have been reported to ChexSystems. When they find customers who have been reported, regardless of the reason, many times they will freeze and close that customer’s accounts. They will rarely take into consideration how long the individual has been a customer or whether or not the account is in good standing.

>> MORE: How To Dispute Information On ChexSystems

Tips For Maintaining A Good Record and Finding Alternatives

The consequences of being reported to ChexSystems can be dire, so it’s imperative to avoid engaging in bad banking behavior. Follow the advice below to help you maintain a positive banking record as well as to find other ways of accessing mainstream financial services if you’re already in the ChexSystems database.

  • Sign Up For Overdraft Protection: Setting up overdraft protection for your checking account will prevent your checks from bouncing and your account from being overdrawn. If you don’t bounce checks or overdraft repeatedly, you won’t get dinged for them in ChexSystems. Be aware that most banks only offer overdraft protection to those whose credit rating passes the minimum standard.
  • Keep Tabs On Your Account: Don’t rely on your bank to tell you how much money you’ve spent or have in your bank account. Use online banking to your advantage, and maintain a check register. When you write a paper check, it can take days or even weeks before the money’s taken out of your account. You should never write a check you can’t cover. But by recording the check and subtracting the amount in your check register, you’ll know that money’s off-limits and exactly how much of your balance is left for you to spend.
  • Expect The Unexpected When Closing An Account: Sometimes, automatic recurring payments will still go through even after you’ve deactivated them, which can trigger overdraft fees even after you’ve closed your account. If you have the resources, leave a small amount (e.g., $100 or $200) in your account for a couple of months before closing it for good. During that time, you should turn off all automatic recurring payments or transfer them to a new account.
  • Keep In Touch With Your Bank: When you close your bank account, make sure you provide the bank a way to contact you in case you have outstanding obligations (e.g., recurring payments you forgot to turn off and went through) after closure. Send them your new address, especially if you move out of state, your phone number and/or your email address.
  • Check Yourself Out In ChexSystems: Don’t wait until you’re denied a new bank account to check your banking history report. Every 12 months, you should proactively request your free copy of your ChexSystems report and make sure it’s free of errors.
  • Know the Rules and Your Rights: Understand your bank’s policy regarding ChexSystems reports to avoid any surprises in the future. Some banks stipulate a minimum debt amount or provide a sort of “grace period” before they report you to ChexSystems. Some also conduct “sweeps,” in which a bank will randomly check existing accounts to find customers with ChexSystems records, freeze those accounts and later close them. It’s also useful to know whether they’ll delete a ChexSystems record once you’ve settled a delinquent account.Besides familiarizing yourself with your bank’s ChexSystems policy, take some time to learn your rights under the FCRA. In the event you need to dispute an error in your ChexSystems report, you’ll need to know whether your bank or ChexSystems has violated the FCRA, which will strengthen your case.

While you’re waiting for your ChexSystems record to clear up, you can access checking account services through other means. Many banks offer second chance checking accounts specifically for consumers with bad banking records. These accounts offer all the benefits of traditional checking. Your other option is to get a prepaid card, which is essentially a checking account without the physical checkbook. You’ll spend only the amount loaded onto your card and won’t incur overdraft fees. As you compare these products, however, don’t forget to consider their limitations and fee structures.

Bank Sweeps

Banks will sometimes conduct ChexSystems Sweeps on existing customers and close accounts without warning even if your account is in good standing. It can take up to 30 days to get your money out of a frozen account. Never have all your money in one bank. With current negatives in ChexSystems, keep a non-ChexSystems account as a backup. If you have direct deposit you may want to split it. That way if your primary account is frozen or closed you still have access to a portion of your paycheck.

Safe Check Ordering

Consumers who have been reported to ChexSystems, whether the item is paid or unpaid, should be careful when ordering checks. Ordering checks from well known companies such as Deluxe, Designer Checks, Checks Unlimited and Current Checks may not be safe. These companies share your personal information with ChexSystems. ChexSystems will then report your ChexSystems record to your current bank.

Order checks from companies that do not share your personal information with ChexSystems such as Costco Check Printing, Checkworks or Harland Clarke. Ordering checks from companies that share your information with ChexSystems may end up getting your current bank account closed, even if your checking account is in good standing.

ChexSystems is a consumer reporting agency which means inaccurate information can be disputed if you are unable to find a No-ChexSystems bank.

Second chance checking

Getting blacklisted doesn’t necessarily mean you won’t have access to a checking account for the next five years. Some banks and credit unions offer people with blemished histories so-called second chance checking. Although these typically come with monthly fees, customers often can move to a less costly regular account after successfully managing their second chance checking for a year or two.

Still, it’s best to do everything in your power to keep your report clean by paying any bank fees you might owe before closing an account and making sure you have sufficient funds to avoid overdrafts and bounced checks.