How much do you know about ChexSystems? Most of the time, people aren’t even aware that it exists until they find that they’re unable to get a new bank account or when they have a check that is not accepted.
This can be a major problem and a financial setback since not having access to a checking account can hamper many things people often take for granted. Below, you’ll be learning more about ChexSystems, why you might have been reported, and more.
What is ChexSystems?
First, it’s important to understand what this system is and why it exists. ChexSystems is a specialty Consumer Reporting Agency (CRA) in the United States that was created under the federal Fair Credit Reporting Act (FCRA). It tracks checking and savings account activity of consumers similar to how reporting agencies like Experian, TransUnion, and Equifax collect information on credit card and loan history.
It’s important to understand that ChexSystems doesn’t involve your credit score, and banks may still offer you credit if you have a poor ChexSystems record. Banks and credit unions don’t usually look at your ChexSystems report when evaluating your creditworthiness.
But this much is clear: a huge percentage of banks and credit unions utilize ChexSystems to evaluate if they want to give you access to a checking account.
Most banks and credit unions—around 85%—in the United States use ChexSystems when they screen applications for people opening up a new bank account. There are currently records for more than 300 million consumers in the country. With a population that’s around 330 million, you can see just how large of a reach ChexSystems has. Financial institutions provide this information to the company, which then makes it available to other banks and credit unions.
If you find that you’re unable to open up a new bank account, it could be due to information that was reported by ChexSystems. If you’re like a lot of people, you may not be sure why you would have been reported in the first place. Let’s take a closer look at the causes of a negative ChexSystems report.
>> MORE: The Best No ChexSystems Banks in the United States
What Causes People to Get Reported to ChexSystems?
Below are some of the most common reasons that people are blacklisted by ChexSystems.
Check Kiting
Check kiting is a type of check fraud that is not only going to get you flagged by ChexSystems but is also likely to end with time in jail. Those who kite checks write a check from an account at Bank A and then write a check from their second account at Bank B. The funds from the second check will cover the funds that are being taken from the first account, even though there may not be money in it to cover the expense.
Check kiting is often done across many banks, not just two or three. Eventually, this will catch up to the person who is doing it.
Check Floating
Check floating is a common practice, unfortunately. It stems from the days when it would take days or a week for a check to clear. Someone would write a check, knowing that they didn’t have money in the account that day, but also knowing that they would be getting paid and would have money in the account in the next day or two. In the past, when it took a long time for a check to clear, this may not have been much of a problem. You had a bit of time.
However, technology being used today means that checks can be cleared the same day and sometimes in minutes. If you don’t have money in the account when the check clears, it will cause some serious problems. You’ll have a bounced check, discussed a bit later in this post.
Overdrafts
If you pull money out of your account and you don’t have enough money available to cover what you need, one of two things will happen. Sometimes, you’ll be denied the ability to buy what you need, and this is the better outcome. Other times, you will make the purchase and the bank will charge an overdraft fee. This fee could be up to $35 in some cases.
There may be times when you desperately need to use money that you don’t have at the moment. However, if there’s any way that you can avoid it, you should try to avoid ATM overdrafts—or any type of overdraft for that matter. Not only is it expensive and could put you into a deeper financial hole, but if you have a lot of overdrafts, you’ll likely be reported to ChexSystems.
Unpaid Balances
Any negative balances that you have must be paid. Having an unpaid balance could have been caused by overdrafts and insufficient funds charges or even a check from someone else that bounced. All of the balances much be paid so the account is even or positive, or else you’ll end up getting reported to ChexSystems.
Switching Banks
When you switch banks, you must close the account, rather than just open up a new account. This is because the old bank accounts could still be active and accruing fees that you aren’t aware of since they aren’t closed. If you aren’t paying those fees, it means you would have an unpaid balance. As mentioned earlier on this list, this means you could end up being reported to ChexSystems.
Bouncing Checks
If you write a check and you don’t have money in the account to cover it, you are bouncing a check. Even if you have overdraft protection on your account, there’s a good chance that the banks will see this as negative activity, and they’ll report you to ChexSystems. You’ll be seen as high risk and other banks will not want to let you open an account with them.
Incorrect Account Information
If you open a bank account in someone else’s name, you are committing fraud, which is punishable by the law, not just ChexSystems. Never provide information that you know to be incorrect when you are applying for a bank account. When you sign the application, it means that you are stating that all of the information is accurate and true. If it’s found to be false, regardless of how much time has passed since you opened the account, you will be reported to ChexSystems and likely the authorities, as well.
What About Errors?
What happens if you feel that there is an error and that you shouldn’t be in ChexSystems? Fortunately, you have the right to dispute virtually every entry on your ChexSystems report.
However, there’s no guarantee that the information will be removed from ChexSystems… especially if you’re not familiar with the dispute process.
How Long Will You Be in ChexSystems?
This is a question that’s commonly asked. People want to know how long they’ll be in ChexSystems and how long it will be before they can open up an account at a bank of their choosing. Typically, you will remain in the system for five years. However, there are some circumstances where they can differ.
However, if you can dispute the listing that’s in ChexSystems, it can be removed sooner. Also, if the bank provides ChexSystems with new information, such as showing that you’ve paid a balance, it might be removed if you ask the bank to do so. Typically, though, you should consider five years to be how long it will take before the listings are removed.
What Is a ChexSystems Score?
Similar to how you have a credit card score, you’ll also have a ChexSystems score. This score is supposed to be representative of your banking history. This is known as your QualiFile Consumer Score.
Banks and credit unions will often use this score when they are trying to determine whether you are a risk to them or not. The score goes from 100 to 899. As with credit scores, the higher the number the better. Higher scores indicate that you are not a risk to the bank. Just keep in mind that they are not connected to your credit score at all.
What Happens with Accounts You Already Have?
Perhaps you currently have a bank account even though you have a bad history and listings with ChexSystems. You might think that you’re safe since you have an open account, but that’s not always true. If you have more than one account across different banks and you’ve only had trouble with one of them, you could find that all of your accounts have been closed or frozen.
There’s also another issue that could crop up. It’s known as account sweeping. This means that the financial institution has decided that they are going to recheck to see if any of their customers have been reported to ChexSystems. If they find that a customer has been reported, they could freeze and/or close the account. It doesn’t matter if you’ve been with the bank for years and you’ve never had problems with them before; it could still happen.
If you have an account that’s still open and in good standing and you need checks, be careful about where you are ordering them. Some companies that produce checks share your information with ChexSystems. If you are in the system, and they see that you’re ordering checks, they will report you to your new bank. This could mean that you wake up to find your accounts in the bank closed or frozen. Stay away from companies like Designer Checks, Checks Unlimited, and Current Checks.
Instead, you’ll want to consider using Harland Clarke or Checkworks. These companies do not share personal information, and they should be safe to order. This way, you don’t run the risk of having your account with the bank closed.
What Can You Do?
Once you’re notified that you have a negative ChexSystems report, you’ll need to decide if you are going to dispute the negative entries. But first, there are some simple tips that will ensure you don’t receive additional negative marks.
Know How Much You Can Spend
You need to be sure you’re keeping track of your account. Use both the online banking features your institution provides, as well as a check register. This way, you will know what money you have in your account, as well as when you have checks that will be cashed by the party you sent them to. Make sure that you consider your actual balance after that check has been cashed and not just how much you have in your account.
For example, your account might say that you have $150 in it, which means you can buy some groceries. However, if you’ve written a check you’ve forgotten about for $100 to the cable company, and it hasn’t gone through yet, you really only have $50 in your account. If you were to go and spend $75 at the grocery store, you would end up bouncing your check to the cable company. Always know how much you have after you account for checks that you’ve written.
Make Sure Your Contact Information Is Updated
One of the reasons that some people end up having trouble with their bank account is that their contact information is out of date and they don’t check their account often. You might have an overdraft fee or an unpaid balance you don’t even know about. If the bank is unable to reach you over the phone or by email, or even through the regular mail because your contact information is out of date, it’s still your fault if you’re reported to ChexSystems.
Take a few moments to make sure that all of the contact information is correct on your account. This way, you can be notified early if there is a problem, so you can take care of it.
Overdraft Protection
Let us be clear here: We are not fans of the exorbitant fees banks and credit unions charge for overdraft protection. We continue to strongly recommend going with a bank that either has no fees for overdraft protection or doesn’t offer overdraft protection. Because consumers are writing fewer and fewer checks, bounced checks shouldn’t be the challenge they once were. Nowadays, consumers use their checking account debit card much more often and if you don’t have adequate cash in your checking account, your debit card will be declined. It may be a little embarrassing, but it will save you on average $35 if you’re a bank customer and $27 if you’re a credit union member.
If your bank offers overdraft protection, be prepared to have a pretty decent credit rating to get approved. Otherwise, we recommend you opt-out (every bank and credit union must give you this option). If you choose overdraft protection, it is there as an emergency shield and not something that you should take advantage of. Doing so will end up causing far more problems for you in the future.
Getting a Copy of Your ChexSystems Report
Each year, you’re entitled to get a free copy of your report. You can also get a copy if you’ve been rejected by a bank in the last 60 days. Your score will not be included in the report in most cases, but you can buy a copy of your score by requesting it from ChexSystems.
We strongly recommend you order your free report through the mail or by fax. Why? If you obtain your FACTA Free Annual Report online, ChexSystems will have the upper hand if you decide you need to dispute entries on your ChexSystems report. We’ve detailed the ChexSystems dispute process on our site extensively.
ChexSystems provides a PDF form you can fill out for the report. Again, don’t request your report by going through the online request system!
Find a Checking Account that Works for You
Unfortunately, being blacklisted by ChexSystems lasts for five years and can make opening a simple checking account a nightmare. And with so many banks and credit unions using ChexSystems, you can’t just open an account at the bank across the street.
Luckily, there are banks that do not use ChexSystems. These “No ChexSystems Banks” offer you a way back into banking and they offer all the services you need and deserve with acceptance rates that are surprisingly high.
When selecting the best bank that does not use ChexSystems, there are several factors to consider:
- Minimum Deposit to Open an Account: Look for a bank with little to no minimum deposit requirements when opening an account. Ensure that the bank does not sacrifice key features despite having low deposit requirements.
- Account Requirements: Research what documents and identification are required by non-ChexSystems banks when opening a checking account. This may include providing your social security number and other government-issued IDs.
- Signup Process: Consider the ease and convenience of opening an account with each bank. Lengthy processes common in bigger banks may not be desirable, so look for a bank with a streamlined signup process.
- Banking Services: Choose a bank that offers a range of banking services, such as savings accounts, upgrades, deposits, withdrawals, and other convenient features to meet your needs.
- Monthly Fees: Compare the monthly fees associated with each banking service offered by non-ChexSystems banks. Look for a bank that provides services at lower monthly fees.
- Hidden Fees: Avoid banks that impose hidden fees and have a reputation for reasonable charges. Be aware of monthly service charges and other potential hidden fees that could impact your banking experience.
- ATM Network: Verify that the bank has a widespread ATM network, enabling easy access to withdraw or deposit money nationwide. Consider which banks have the most ATMs available for customer use.
- Fees on ATMs: Be mindful of potential fees when using out-of-network ATMs. While in-network ATMs typically do not incur additional charges, out-of-network transactions may impose fees.
- Check Writing: If you anticipate using checks frequently, select a bank that offers no-ChexSystems checking and savings accounts, allowing you to choose between them based on your needs.
- Cashback Rewards: If you often make purchases using your account, consider banks that offer cashback rewards and other similar perks to maximize your benefits.
- Mobile App: Since many non-ChexSystems banks operate primarily online, check if they provide a mobile app with convenient features such as mobile check deposits or card lock/unlock options.
- Daily Deposit Limit: Non-ChexSystems banks may have varying daily deposit limit policies. Look for banks that offer higher limits or more flexible setups to accommodate your deposit needs.
- Overdraft Fee: Beware of banks with high overdraft fees, which are charges incurred when you exceed the funds available in your checking account. Select a bank with reasonable overdraft fee policies.
- Mobile Deposits and Transfers: Consider the accessibility and flexibility of mobile transactions offered by non-ChexSystems banks. Opt for banks that provide convenient mobile deposit and transfer options.
- Fraud-Free Record: Choose banks that are known for maintaining clean records in terms of fraud accusations or reports. Trusted reputations and user-friendly websites are indicative of the best checking accounts online for individuals with bad credit.
- Second Chance Savings Accounts: Look for banks that offer second chance banking accounts, allowing you to start fresh despite negative ChexSystems reports. Keep in mind that second chance savings accounts may have slightly different features compared to second chance checking accounts offered by online banks.
- Customer Support Service: Prioritize banks that have a reputation for exceptional customer support. Reliable customer support is crucial for resolving any issues or concerns that may arise.
- Typical Approval Time: Consider the speed and efficiency of the approval process when applying for a non-ChexSystems account. Non-traditional banking options should offer quick and straightforward approval procedures.
- Foreign Transaction Fees: If you frequently travel abroad or anticipate using your account for foreign transactions, select a bank with low foreign transaction fees. These fees are typically charged for purchases or transactions made in foreign currencies.
