ChexSystems: 10 Things You Need To Know

If you’ve ever been denied a checking account, your ChexSystems record was probably to blame. Here’s what you need to know about the report that may determine whether you can open your next bank account.

ChexSystems: What You Need to Know

If you’ve ever been denied a checking account, your ChexSystems record was probably to blame.

What is ChexSystems? And how do banks use it to screen checking and savings account applicants? Here’s what you need to know about this critical consumer reporting agency.

What is ChexSystems?

ChexSystems is a consumer reporting agency that collects and reports information on checking and savings accounts. It’s similar to the more familiar credit reporting agencies–TransUnion, Equifax and Experian–except ChexSystems information is used to determine whether you can open a bank account rather than whether you can get a loan. When you apply to open a new bank account, your bank is likely to get a ChexSystems report to decide whether to approve the new account.

Unlike a credit report that shows the good and bad, ChexSystems reports just focuses on the bad–like bounced checks. If your ChexSystems report contains too much negative bank account history, your application for a new account is likely to be denied.

What does ChexSystems Track?

ChexSystems tracks negative information reported by its subscribing banks. While banks vary somewhat in what they will report to ChexSystems as a harmful activity, it falls into a few key categories.

  • Overdrafts and bounced checks: One instance usually won’t be reported to ChexSystems. But multiple in a short period will.
  • Unpaid banking fees: Since monthly fees are usually taken out of your balance automatically, this is usually overdraft or insufficient fund fees.
  • Any suspected fraudulent activity: Issuing fraudulent checks, exceeding transfer limits, or trying to deposit empty envelopes into an ATM.
  • Involuntary account closure: When a bank has closed your account because of bad behavior, like fraud or bounced checks.

Outside of negative bank activity, ChexSystems also keeps tabs on a few other neutral data points. These are things like ChexSystems inquiries, lost debit cards, check-ordering history, and the number of recent account applications.

What Does ChexSystems Report to Banks?

ChexSystems uses the information it collects to generate two main things for banks.

ChexSystems Consumer Scores

Like the credit agencies, ChexSystems also calculates your “score”–a one number summary of ChexSystems assessment of your risk to banks that you’ll misuse your bank account. Simply called the “ChexSystems Consumer Score”, the higher, the better. Scores range from 100 to 899 with higher scores indicating lower risk individuals.

ChexSystems doesn’t disclose its exact scoring methodology, a concern many consumers and banks have about the system. However, fewer (or no) adverse reports means a higher score.

Consumer Disclosure Report

Your ChexSystems Consumer Score is just a snapshot of your negative banking history. It doesn’t tell a bank any specific information about how you received your score. And those factors may be more or less important than they are to ChexSystems.

So, ChexSystems includes a disclosure report when sending a score to banks. This includes your negative reported activity, inquiries in the past 90 days, bad check and retail debt information. It also includes your history of ordering checks, address changes, properties owned, and public records of bad behavior.

Why Does My ChexSystems Score Matter?

Over 80% of banks and credit unions use a screening system like when making decisions on account applications, according to the National Consumer Law Center.  A low score could impact a person’s ability to open a checking or savings account.

Who Can Get My ChexSystems Report?

Like credit reporting companies, ChexSystems is governed by the Fair Credit Reporting Act (FCRA). This act protects consumers from the abuse of their private information. ChexSystems can only release your information to those with legitimate requests. These include business transactions initiated by you, like a bank account application, requests with your written permission, and court orders.

How Do I Check My ChexSystems Score & Report?

One of the requirements of the Federal Fair Credit Reporting Act is that consumer reporting agencies must allow consumers to access their detailed reports for free once a year.

You can request your report online or via phone, mail, or fax. The report will be mailed to you within five business days after receiving your request free of charge.

To request your report by phone, call 1-800-428-9623. You can also print the Consumer Request for Disclosure Form and mail it to:

ChexSystems, Inc.
Attn: Consumer Relations
7805 Hudson Road, Suite 100
Woodbury, MN

Difference Between Requesting Your Score & Disclosure Form

You can request your ChexSystems Consumer Score at any time by mailing or faxing this form to the company.

However, this will only provide you with your score. You need the full Disclosure Form to see what negative items are actually on your report. Otherwise, you don’t know what to dispute or fix to improve your score.

Do All Banks Run ChexSystems Reports on New Accounts?

No. About 80% of banks and credit unions use some type of consumer reporting agency (CRA) to evaluate account applications. While ChexSystems is one of the largest bank CRAs, it isn’t the only one. Early Warning Services and Telecheck are also widely used.

Some bank accounts, like Chime and BBVA Compass, don’t check CRAs as part of the application process.

Do All Banks Use The Same Standard to Approve a Checking Account?

The problematic part for consumers is that there is no universal system across banks for the use of ChexSystems and other CRA reports.

Research suggests that 25% of banks that use the service will automatically reject someone with a low score. While 50% will require manager approval to allow a person with a low score to open an account, which introduces bias into the decision-making process.

While banks that don’t use CRAs are easy to identify, banks that use tools like ChexSystems aren’t transparent with their policies. Though it never hurts to ask, especially if you already know you have a low score.

What Could Have Given Me A Low ChexSystems Score?

Numerous instances of bad banking behavior can give you a low ChexSystems score. This includes any combination of the items ChexSystems tracks. Events such as multiple overdrafts, false information provided on an account, nonpayment of fees, and fraud.

These adverse events are more common when you regularly use checks without tracking your balance. If you write a check beyond the balance of your bank account, the check will bounce. A negative event to ChexSystems – though not all banks will report a one-off mistake. Alternatively, if you try to spend more on your debit card than is available, the card will just be declined. You won’t face an overdraft fee or reported event.

Fraudulent activities, like providing false information to a bank or depositing empty envelopes in ATMs, are more serious offenses. These can have ChexSystems and legal implications.

How Long Does Negative Account History Stay on my ChexSystems Report?

ChexSystems keeps negative account activity on your report for five years. The FCRA allows it to keep data for seven years, like credit agencies, but its cut-off is shorter.

If I Have Negative Items On My ChexSystems Report, What Can I Do?

Already have a low score? There are a few things you can do to improve your standing with ChexSystems.

1 – Get Your ChexSystems Report

Follow the procedures outlined above to get your free annual copy of your ChexSystems Consumer Report.

Review all negative items to see what is impacting your score. You can find this starting on page two of your report under the headings Reported Information, Check Cashing Inquiries, and Retail Information.

2 – Dispute any errors

If any of the negative items on your report are wrong, you can dispute it with ChexSystems. Federal law requires them to investigate within 30 days, at no charge to you.

Watch out for predatory companies that charge you for disputing errors. This is a required free service.

To improve the likelihood of a dispute being settled in your favor, collect any records you have supporting your claim. Once you have what you need, head to the Dispute Information section of the ChexSystems website. There are three ways to file a dispute.

  • Online: You can submit a dispute online with supporting documentation. Once you have filled out all your information, select “Dispute Another Item” or hit “submit” to send it to ChexSystems.
  • Mail or Fax: You can fill out a Request for Investigation form to submit to ChexSystems via mail or fax. Be sure to include current mailing address, consumer ID number from your ChexSystems Consumer Report, and nature of the dispute. Fax all forms to 602-659-2197 or mail to the same address listed above for requesting your ChexSystems report.
  • Phone: If you do not have supporting documentation for your dispute claim, you can call ChexSystems at 1-800-513-7125. However, you do need to have your Consumer Disclosure Report or be aware of the exact information you are disputing. Families where there are generations of the same name (e.g., John Smith, John Smith Jr.) likely need to call when a relative’s negative events are recorded on the wrong report.

Once you dispute an error, you also have the option of reaching out to the financial institution. They are the ones who reported the incident to ChexSystems and have the ability to ask for it to be removed.

3 – Pay any debts

If you have legitimate negative items on your ChexSystems report, such as unpaid fees or bad checks, pay them.

Don’t have the money to settle your debts? Request a settlement with lenders. Some will accept a lower payment to guarantee some money comes in the door immediately – instead of risking that it never arrives at all.

4 – Ask For Negative Items To Be Removed

Once you have paid your debts, you can reach out to the company that reported the information to ChexSystems to ask for it to be removed.

Companies can ask for any item they flagged to be removed by ChexSystems immediately. You can also take matters into your own hands and send documentation of a cleared debt to ChexSystems.

5 – Wait

Some negative reports, like bank accounts closed for suspicious activity, are hard to remove from an account. In those cases, all you can do is wait for the item to fall off the report.

ChexSystems keeps negative items on your consumer record for five years. After this time, it will no longer impact your score or be sent to banks. In the meantime, you still have options.

If I Can’t Get a Bank Account Because of My ChexSystems Report, What Are My Options?

If you have a low ChexSystems report, you aren’t out of luck. Banking options still exist as an interim measure until your ChexSystems score improves. Here are a few options to consider.

Get an Account at a Bank That Doesn’t Use ChexSystems

Over 80% of banks use banking report services like ChexSystems, but that leaves almost 20% that don’t.

But there are a few online options available to everyone.

  •       Chime: You can apply for this online checking and savings account with no ChexSystems check. It is a completely free checking account – no monthly fees, no overdraft fees, no foreign transaction fees, and no minimum balance requirements.
  •       BBVA Compass: You can apply for this online checking account with no ChexSystems check. It is a free checking account with a $25 minimum opening deposit.

Apply for a “Second-Chance” Checking Account

Many banks offer checking accounts for people with low ChexSystems scores looking to turn over a new leaf. While you can graduate to a standard checking account once you are back in good standing with a bank, these accounts tend to have higher fees than other checking accounts. Look for banks that provide the opportunity to waive the monthly fee for specific behaviors–such as using direct deposit or maintaining a minimum balance–to keep costs low.

When opening the account, ask whether the bank offers an opportunity to switch to a standard, lower-cost account after establishing a good track record. If there’s no specific time-frame, reach out to the bank in a year or two. That’s typically enough time to be transferred to a lower cost account.

Use a Prepaid Debit Card

Prepaid cards can be a good checking account alternative and can offer many of the features of bank accounts. Most allow for direct deposit, bill pay, and online shopping. Some even include unique features like interest-bearing savings accounts and cash back rewards.

Prepaid cards don’t use ChexSystems or similar reports so the cards are easy to obtain, even if you have negative banking history. You just need to verify your identity.

Many prepaid cards do have higher fees than a checking account, and they lack some checking account features. There are some low cost prepaid cards, however, that can fit the bill if a checking account is not an option.

Summary

ChexSystems is a consumer reporting agency that keeps tabs on any risky banking behavior like overdrafts, bounced checks, and fraudulent activity. A low score can impact your ability to open a checking or savings account, but there are things you can do.

Request your consumer report each year to review any negative items and work to settle them. And while you wait for your score to improve, make use of checking accounts that don’t require ChexSystems checks, second chance checking accounts, or prepaid debit cards.