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.
When you apply for a bank account, most financial institutions will screen your application by checking your banking history. About 85 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.
Why Was I Reported To ChexSystems?
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. On top of that, consumers with a negative ChexSystems record may not always be aware what led them to being blacklisted.
Although negative information in ChexSystems can be disputed, there is no guarantee the dispute will get the item removed from ChexSystems. It is best to avoid the below bad habits that can get you reported to ChexSystems before you reach the trouble zone:
1. Unpaid Balances
Whether you have insufficient fund charges, uncollected overdrafts, ATM transactions or automatic payment fees; or, you deposited a third-party check that bounced — negative balances must be paid. Any unpaid balance may be reported to ChexSystems. ChexSystems can report negative notations for 5 years.
2. Incorrect Information
Fraud is a crime punishable by law. Never open a bank account using a false name. Do not knowingly provide any incorrect information on a bank application because your signature on that application indicates the information is true and correct. If information is found to be false, even at a later date, the bank can report you to ChexSystems. Once fraud is noted in your ChexSystems file, it will be very difficult to open a checking or savings account.
3. Check Kiting
The FBI defines check kiting as “a scheme which artificially inflates bank account balances, in accounts that are under common control, for purposes of obtaining unauthorized use of bank funds, through the systematic exchanging or swapping of checks between these accounts, in a manner which is designed to misuse the float that exists in the banking system.”
In simpler terms check kiting involves writing a check from a first account in one bank, then writing a check from a second account at a different bank. The funds from the second check cover the funds from the first account. Check kiting can involve multiple accounts at multiple banks. Check kiters take advantage of the time needed for checks to clear. It is clearly committing check fraud which will not only get you reported to ChexSystems but may also land you behind bars.
4. Check Floating
Check floating is a common practice among consumers but it can become a problem. You may write a check for a bill or even a purchase one day, then make a deposit or have direct deposit the next day without ever intending to defraud the bank. This is a form of floating checks many consumers have innocently practiced. However, today’s system of electronic funds transfer may mean a check is cleared within minutes instead of days. You may want to avoid floating checks whenever possible.
5. Switching Banks
We get questions all the time from consumers who are unknowingly reported to ChexSystems due to an old account still open. Any time you switch banks make sure you close all accounts at the previous banks and pay any negative balance. Just because you no longer use an account does not mean it is officially closed. Dormant bank accounts are not closed accounts. Fees and charges may still be accumulating on dormant accounts and you are responsible for those fees. Unpaid fees can be reported to ChexSystems, even for minor amounts.
6. Bouncing Checks
Some consumers may be willing to pay overdraft fees. But keep in mind, even if you don’t mind paying overdraft fees, your bank can report that as negative behavior to ChexSystems. Bouncing too many checks makes money for banks but also flags you as high risk.
7. Excessive ATM Overdrafts
When you pull more money out of your account then you have available the bank will charge you an overdraft fee. Some banks do not allow customers to withdraw more money than what is available. But there are banks such as Bank of America that allow customers to pull out more money than what is available for a $35.00 fee.
We do understand there are emergencies and this may be convenient for some customers but it should be kept to a minimum. Having excessive overdrafts is another negative banking habit that may get reported to 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.
Getting Blacklisted By ChexSystems
Anyone who has ever opened a bank account in the U.S. is likely to have a ChexSystems record. ChexSystems reports only negative information, including every banking transgression you — or someone pretending to be you — committed in the past five years.
It’s also important to note that ChexSystems does not report on your credit history, so it’s never a factor in any loan or credit card application though your ChexSystems Consumer Score may be.
The table below (originally published by WalletHub.com) summarizes the information that banks and merchants report to ChexSystems. To see what an actual ChexSystems record looks like, you can check out this sample report.
|Activity||Description||When It’s Deleted|
|Involuntary Account Closure||Bank closes your account usually “for cause” (e.g., writing too many bad checks or fraud)||After 5 years (unless you successfully dispute the listing or the bank or ChexSystems deletes the listing sooner)|
|Bounced Checks and/or Overdrafts||Usually for multiple instances|
|Unpaid Negative Balances||Usually for outstanding overdraft/nonsufficient funds (NSF) fees or other charges|
|Savings Account, Debit Card or ATM Abuse||For risky or dishonest behavior (e.g., depositing empty envelopes at ATM or frequently exceeding transfer limit)|
|Outstanding Checks in SCAN Database of Returned Checks & Instances of Fraud||Checks issued or sent to a collection agency; returned or fraudulent checks|
|Suspected Fraud or Identity Theft||For altering checks or providing false information on an application|
|Inquiries||Initiated by you, a bank, an employer, a creditor, or other “permitted” party||After 90 days or no more than 3 years if initiated by you; otherwise after 5 years|
|Lost Checks & Debit Cards||Routine reporting (not necessarily negative information but can indicate possible fraud)||After 5 years (except check-ordering and application histories and unless you successfully dispute the listing or the bank or ChexSystems deletes the listing sooner)|
|Check-Ordering History from Past 3 Years|
|Number of Accounts Applied for in Past 90 Days|
|Social Security Number/Driver’s License Validation and/or Verification|
Each bank has its own policies regarding which of the above items it will report to ChexSystems. However, there is currently no standardized definition as to what constitutes “fraud” or “account abuse,” according to the National Consumer Law Center. If your report lists “suspected fraud,” ChexSystems won’t distinguish whether you were the victim or the perpetrator.
And though some banks will overlook a few bounced checks, others will report this to ChexSystems as abuse of your account, leaving a black mark on your record for a period of five years. The same applies if you leave a negative balance unpaid for a certain period, as some banks will wait as long as 90 days before reporting the issue, whereas others will be far less patient.
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.
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.
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.
How To Order A Free ChexSystems Report
Under the Fair Credit Reporting Act (FCRA), you are entitled to a free copy of your report once every 12 months or if you’ve been rejected by a bank in the past 60 days. ChexSystems is not required to provide a free copy of your score, however, so while you can purchase a copy of your score at any time, it will not be included in your free report.
Upon receiving your request, your ChexSystems report or score will arrive by mail within five business days. Below are instructions for obtaining your information.
|Online (Report Only)||Complete an Online Request Form.||consumerdebit.com|
|By Phone (Report Only)||Follow the instructions of the automated system.||800-428-9623|
|By Fax (Report Only)||Print and complete an Order Form.||602-659-2197|
|By Mail (Report or Score)||For Report: Print and complete an Order Form.For Score: Print and complete a Score Order Form. Enclose a check/money order for $10.50 made payable to Chex Systems, Inc.||Chex Systems, Inc.|
Attn: Consumer Relations
7805 Hudson Rd., Ste. 100
Woodbury, MN 55125
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.