Consumers in ChexSystems may not be aware what landed them in the consumer reporting agency. ChexSystems records remain in consumer files for five years.
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.
ChexSystems retains information for five years and in those five years it can be difficult to get open a new account even if the item is paid. Second chance banks may work with you to open an account but it is best to avoid behavior that get you reported to ChexSystems in the first place.
If you do not know what’s in your ChexSystems report you are entitled to a free ChexSystems report once every 12 months. ChexSystems also produces a score, similar to your credit score and you can order your ChexSystems score for a fee.
Tips to Manage your bank account
Stay out of ChexSystems by managing your bank account with the following tips:
- Keep an eye on your account. With online, telephone and ATM banking it is easy to check your balance daily and stay updated on your account activity and transactions.
- Record all transactions in your checkbook register. You may not even write checks but use the check register to record transactions such as: purchases; ATM debits, electronic transfers, ACH withdrawals, credits and other debits.
- Get overdraft protection. Most banks have various forms of overdraft protection. Take advantage of it. It can save you money.
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 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.
Read How To Order A Free ChexSystems Report for instructions on obtaining your free copy.