What Is ChexSystems?

Most of us have heard of Equifax, TransUnion, and Experian – the trifecta of credit bureaus that impact everything from credit card applications to car loans. But far fewer people are familiar with ChexSystems, yet another consumer credit reporting agency that also impacts one’s financial affairs.

If you’ve ever tried to open a bank account and been denied, it’s likely because of ChexSystems, which provides financial institutions with information about how consumers use deposit accounts.

ChexSystems tracks the details of your banking history — such as whether you tend to have a low daily balance, have bounced checks at retailers, or have ever abandoned an account leaving a negative balance. All of this information can be reviewed by a financial institution when you attempt to open a new account.

With that in mind, here’s what you need to know about ChexSystems.

How Is ChexSystems Used by Banks?

The vast majority of U.S. banks, nearly 80%, use ChexSystems to screen applicants for bank accounts. The services and information that ChexSystems provides financial institutions include verification of identity, reports on account history, and transaction monitoring.

The agency reports only the negative information to banks, and those reports can make opening a bank account challenging.

“Consumers should know that if you have a history of bouncing checks or you abandon accounts with a negative balance, your bank will report you to ChexSystems,” says Levar Haffoney, a New York-based wealth manager for Fayohne Advisors. He adds that once a consumer has been flagged, it’s very difficult to open an account with another financial institution.

Can You Repair Your Banking History?

If you’ve ever opened a bank account, then it’s likely you have a ChexSytems report, according to financial experts. But if you have a negative report, all is not lost.

Haffoney and others say smaller regional banks and credit unions do not necessarily use ChexSystems to screen applicants, and thus can provide an opportunity to rebuild a positive banking record.

“Local banks and credit unions are more receptive to people who are low income and they are more willing to look past credit history issues,” Haffoney explains.

Some banks also offer what’s known as a ‘second-chance checking account,’ says Haffoney. Such accounts involve the bank closely monitoring your activity for a year or two before allowing you to move on to a regular account.

Those who have a negative banking history should also work with the institution where the financial trouble occurred to try and correct the issue, perhaps repaying an overdraft charge for example, says Deric Poldberg, a personal banker for American National Bank in Omaha, Neb.

While American National uses ChexSystems to screen every single account applicant, the bank is willing to look past a negative report if the applicant provides documentation showing the situation has since been addressed responsibly.

“If you brought me proof of repayment on the bank’s letterhead, then we will open an account,” says Poldberg. “That’s how we operate.”

How Long Will a Negative Incident Remain on Your ChexSystems Report?

It’s important to note that even if a negative incident is resolved with the bank in question, ChexSystems is likely to still keep that incident on your report for up to five years after it occurred.

This is particularly the case if the financial institution’s original report to ChexSystems was an accurate report of account mishandling on your part. However, there are cases where a financial institution will request the incident be removed from your report, such as when there’s a consumer dispute filed.

You can find out what your ChexSystem report says by visiting the agency’s website. Consumers are eligible for one free copy of their ChexSystems report annually.

This is a particularly good idea if you’ve been denied an account and ChexSystems was used in the decision process. Obtaining your report can help you identify the problem – and get to work resolving it.

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Mia Taylor

Contributor for The Simple Dollar

Mia Taylor is an award-winning journalist with more than two decades of experience. She has worked for some of the nation’s best-known news organizations such as The Atlanta Journal-Constitution and the San Diego Union-Tribune. Taylor holds a graduate degree in Journalism and Media Studies and had a fellowship to study journalism at the San Diego affiliate of National Public Radio. Over the course of her career, she has won numerous journalism industry honors, including five awards from the North American Travel Journalists Association and the 2011 Walter Cronkite Award for Excellence in Journalism.