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Updated on Monday, December 9, 2019
Most people know they have a credit score and credit report that lenders use to decide if and how you can borrow money. But did you know that banks and credit unions have their own method of determining if you’ll be a good customer? Enter ChexSystems, a reporting system that tracks all of your closed checking and savings accounts. Even though many consumers haven’t heard of the agency, its reports could have a massive effect on your ability to open a new bank account.
What is ChexSystems and what does it do?
The information that ChexSystems tracks is used to create your Fair and Accurate Credit Transaction Act (FACTA) report. Think of this as a banking-specific version of your credit report.
When you apply for a new checking account or savings account, the financial institution will often run your ChexSystems report to see if you have any negative marks. These can include overdrawn accounts, negative balances, closed accounts and more, all of which typically stay on your report for five years. Basically, banks check these reports to assess how much of a risk they’re taking by doing business with you.
“[Banks] want to know that if someone’s going to open an account with them that they’ll keep the account in good standing,” said Alexandra Cisneros, an education specialist at GreenPath Financial Wellness.
There are a few ways that ChexSystems helps banks do that. First, there’s your “risk score” — also known as your consumer score — that the agency calculates based on your prior credit behavior. Scores range from 100 to 899, and just like with your credit score, a higher number means you present a lower risk.
ChexSystems also generates a Consumer Disclosure report, which shows specific details about your credit history. The report might list past issues, such as unpaid account fees, overdrafts, bounced checks or even suspected fraud.
How many banks use ChexSystems?
Around 80% of all banks use ChexSystems, according to Banks.org. Cisneros said that nearly every major bank and credit union she has encountered does look at the agency’s reports, but there are some options in case you end up with negative marks or a low score.
Many banks offer “second chance” accounts, which specifically help people with less-than-perfect financial histories. These bank accounts might come with limitations or extra fees, but they can be a great workaround if you’ve received a poor ChexSystems report. Read on for more information on this option.
Why do I have a ChexSystems report?
There are plenty of reasons you may have a ChexSystems report, some of which might come from issues completely beyond your knowledge.
“The way people usually come to realize that they are having an experience with ChexSystems is when they apply for a checking account and find that they have a file,” Cisneros said.
Overdrafting is the most common occurrence that Cisneros sees, but there are plenty of other problems that might pop up. Here are the most common examples, which are broken down in detail below.
1. Not paying account fees
When you overdraw your account, your bank will usually charge you a fee. Overdraft fees can be as high as $35 at some banks, but as of March 2017, the national median was $30, according to research firm Moebs Services.
Even if you’re only overdrawn for one day, you can end up owing significantly more than that if you continue to spend money before you realize the account is overdrawn. It can be difficult to repay these fees, especially if you can’t afford to bring your account current.
However, if you end up closing the account with a negative balance or if the bank decides to close the account for you, ChexSystems will list this on your report. This is one of the most common reasons that a bank or credit union will deny your application, since your report reflects that you might struggle to pay your debts.
If you do get a fee on your account, call your bank as soon as possible. Sometimes the bank will waive (or reduce) fees for good customers. At the very least, ignoring the problem won’t make it go away and can cause you to get a negative mark on your ChexSystems report. Usually banks will give you a deadline to pay your fees before closing your account and reporting it to ChexSystems.
2. Overdrafting on your account
Even if you pay your overdraft fees when you go over your account balance, you can still be denied a new account if ChexSystems shows that you overdraw too often.
Here are some safeguards that you can set up to prevent overdrafts:
- Keep all of your money in one account that you use solely for daily transactions.
- Allow your bank to decline purchases if you don’t have enough available funds (which may mean declining to enroll in overdraft protection).
- Use caution when opting for overdraft protection. With this service, banks will allow transactions to go through even if you have insufficient funds, but they will almost always hit you with overdraft fees at the same time.
- Avoid using checks, which may be cashed at a later date.
- Set up bank alerts so you’re notified if your balance dips below a certain amount.
3. Writing bounced checks
A bounced check is when you write a check for an amount that you don’t currently have in your account. When the recipient tries to deposit the check, the bank will reject it and charge you a fee for insufficient funds.
If you have any bounced checks that have been reported by retailers, it will show up in your ChexSystems report, which could cause you to be denied for a new account. Bouncing checks makes it seem like you’re not on top of your finances, especially if it continues to happen over a long period of time.
4. Committing fraud
It’s one thing to write a check for $100 and assume you have $100 in your bank account, only to have that check bounce. But it’s quite another to write a check knowing that you don’t have the funds in your account.
That constitutes fraud, and it’s a serious offense that can result in criminal action. Other types of fraud include opening an account with someone else’s information, and trying to write a check to yourself from another person’s account. Instances of fraud will show up on your ChexSystems report.
How long do ChexSystems reports last?
ChexSystems keeps records for five years, meaning you’ll have to wait that long for any negative marks to come off your report. However, if you find incorrect information, you can dispute it and ask for it to be removed.
You can also freeze your ChexSystems report. Like a credit report freeze, you can freeze your ChexSystems report so no bank or credit union can view it. This could block someone from stealing your identity and opening a new account in your name. However, it can also make it more difficult for you to open a new checking or savings account.
How can you clean up your ChexSystems report?
The first step to cleaning up your ChexSystems report is to take a look at what’s in it. According to Cisneros, this “investigation” phase is often the hardest step for consumers, but it can make all the difference in clearing your record.
“Know your options and what will happen — being aware of that can be the most empowering thing,” Cisneros said.
Getting your ChexSystems report
To get your free ChexSystems report, go to www.chexsystems.com and click on “Free FACTA Report.” As with a credit report, you’re legally entitled to one free copy of your report every 12 months.
However, unlike with your credit report, which you can access online after answering a series of questions, you have to wait for your ChexSystems report to be sent to you by mail. You should receive the report within five business days after submitting your application.
Submitting a dispute
From there, you can dispute any errors or mistakes you might see on your report. To do that, you can submit a form via this website, by fax at 602-659-2197 or by mail at the following address:
Attn: Consumer Relations
7805 Hudson Road, Suite 100
Woodbury, MN 55125
ChexSystems recommends that you include the following information when you submit your dispute:
- Full name
- Social Security number
- Current mailing address
- ChexSystems consumer ID number, if available
- The information you are disputing, as well as any information regarding the nature of your dispute
It usually takes 30 days for the investigation to be finalized, and the results will be mailed to you.
What are the alternatives to a checking account?
Thankfully, consumers with negative ChexSystems reports do have a few alternatives at their disposal. If you’re having trouble opening a checking account, here are two of the easiest workarounds.
Second chance bank accounts
Again, second chance bank accounts offer you the chance to open a bank account despite having an imperfect financial record — albeit with a few limitations and possible fees. There are plenty of great options available, many of which also offer you a road to a standard, fully equipped account.
For example, Radius Bank, which is available to consumers nationwide, offers an easy-to-open second chance account that comes with a free debit card, 24/7 banking access and the ability to upgrade to a more premium account after 12 months of good credit history. There are a few fees to watch out for, though.
Another option is the app Chime, which offers bank accounts without checking applicants on ChexSystems. As an added perk, the account is mostly fee-free, with no monthly charges, ACH transfer fees, foreign transaction fees or ATM fees.
For more info on second chance accounts, here’s our list of some of the best options available. If you already have a bank in mind, call them and ask what information they use to verify new accounts. Not all banks use ChexSystems; some use other systems like Early Warning System or Telecheck.
Prepaid debit cards
A prepaid card works like a gift card. You load it with money and then use it wherever cards are accepted. You can send money with your prepaid card, pay bills online and set up direct deposit. In many ways, it acts like a debit card that you’d get with a checking account.
There are debit card, with many major financial institutions offering their own deals. For example, the American Express Bluebird card allows customers to add between $1 and $1,999, with accounts that cost as little as nothing to open. Meanwhile, the Navy Federal Credit Union’s GO Prepaid Card doesn’t charge any fees for use or activation, but it does require that you deposit at least $20 in order to open an account.
However, there are downsides to these cards, mostly fees. Some prepaid cards charge a fee for buying the card, while others have a monthly fee. They can also charge every time you withdraw money or reload the card. If you use the card often, you can face high fees every month that cut into your ability to save money and improve your finances. In our review of the AccountNow Gold Visa Prepaid Debit Card, for example, we found that consumers could spend more than $100 in fees per year just to maintain the card.
Still, a prepaid debit card is one alternative to consider if you have a negative ChexSystems report. And if your report is stopping you from opening a new checking or savings account, remember that there are also steps you can take to clean up your ChexSystems report.
The information in this article is accurate as of the date of publishing.