What is ChexSystems?
ChexSystems is a consumer reporting agency that helps banks decide whether to open a checking account for a new customer. They work for banks and credit unions much like the credit bureaus: Equifax, Experian, and TransUnion. However, there are some differences in the way they maintain and report data.
ChexSystems does not make any decisions regarding whether an account is opened for you. That choice depends solely on the financial institutions you decide to work with, but not all banks use ChexSystems.
This means you have access to your ChexSystems report in much the same manner as you can access the credit reports from the three major credit bureaus. If you’ve had problems opening a bank account, it may be wise for you to order your ChexSystems report to see what’s listed.
What You Need to Know Before Opening a Bank Account
If you’ve had a checking account closed due to non-sufficient funds (NSF), excessive overdrafts (OD), suspected fraud, or other issues, you may have problems opening another checking or savings account at a later time.
In particular, problems arise when your account is closed, and you still owe the bank fees either for overdraft or other services. Most credit unions and banks will refuse to establish an account for individuals who have had these types of problems in the past. This is true even if you currently have funds available to open an account.
Banks rely on ChexSystems to provide information about individuals who have had problems with insufficient funds in the past.
It works much like being denied a credit card due to past credit history. Even if your current situation has improved, you may be denied a bank account based on your past banking history.
How does ChexSystems work?
ChexSystems keeps track of bank accounts that have been closed for particular issues. More than 90% of banks and credit unions in the U.S. use ChexSystems as part of the application process for a new checking or savings account.
You can see why it can be difficult to successfully apply for checking and savings accounts if you’re in their system. The standard term for this is accounts that were closed “for cause.” The term “for cause” can encompass any number of things, including:
- Multiple bounced checks in a short amount of time.
- False information provided on the account.
- Nonpayment of insufficient funds or overdraft.
- Abuse of a savings account, debit card, or ATM transactions.
- Any type of fraud.
- Violation of any banking rules and regulations
This is by no means an exhaustive list, and ChexSystems may include your closed account for another reason other than what is listed here. Each time you have an account closed for one of the reasons listed above, ChexSystems keeps track of it in their database.
How long does it take to get out of ChexSystems?
The information stays on file for five years from the date the account was closed. This may seem similar to a credit score, but ChexSystems is an entirely different scoring process.
ChexSystems scoring ranges between 100 and 899. The higher the score, the better. Interestingly, you can have a poor ChexSystems rating while having an excellent credit score, and vice versa.
They’re completely different measures of your financial history, with the information being used in very different situations.
How long does ChexSystems stay on your record?
Even if you later pay off the overdraft you owe to the bank or credit union, it will remain on your ChexSystems record if the account was closed with unpaid negative balances.
While ChexSystems will update a paid overdraft, they will not remove the record from their system until after the five-year period. However, they will remove it if there is evidence the account was listed improperly (i.e., the account is not yours or was created fraudulently as a result of identity theft).
Many banks participating in the ChexSystems program will not open an account for an individual with one or more incidents listed on their ChexSystems report. Therefore, if you’ve had a bank account closed for non-sufficient funds in the past, you may have trouble when you try to apply for a new account.
If you’re denied a bank account due to your ChexSystems report, you are entitled to a free report within 60 days of being denied; the same as if you’ve been denied credit due to information on your credit report.
Check Out Our Free Guide:
How to Get Out of ChexSystems
How can I get my free ChexSystems report?
The best way to get your ChexSystems report is to order it directly online from the ChexSystems website itself. You can also request a ChexSystems report by mail:
Chex Systems, Inc.
Attn: Consumer Relations
7805 Hudson Road Suite 100
Woodbury, MN 55125
You should receive your ChexSystems report in about five business days. If you find any inaccurate information, you can dispute it in the same way you can dispute credit report inaccuracies. You may also place a statement on your ChexSystems report for any negative information listed.
You can use this statement to explain any circumstances surrounding why an account was closed, such as disputed fees or other issues.
While most banks do use ChexSystems, it’s possible to find banks that don’t. Some banks don’t check your records at all.
However, they may check your credit report, so it’s important to understand what’s on there as well. They might also review any records you have in the Early Warning System (EWS) or Telecheck Data.
Here is a list of popular banks and credit unions that DO NOT use ChexSystems.
Second Chance Banking
Some banks and credit unions that use ChexSystems also offer “second chance checking” accounts to individuals with only one or two incidents on their report.
These banks may still use ChexSystems, but they are willing to offer you a second chance. You can expect these second chance checking accounts to limit how much money you can withdraw and/or a minimum balance requirement. You might also hear this type of account called a “fresh start” account.
To improve your chances of getting approved for either a second chance checking or non-ChexSystems account, consider forgoing the option of overdraft protection. Many people’s previous trouble is not paying their overdraft fees.
If you don’t get overdraft protection, the bank doesn’t risk losing money on your account. You’ll just need to be extra careful in tracking your spending so that your debit card isn’t denied at the register for insufficient funds.
Here is a list of popular banks and credit unions that DO use ChexSystems.
- Academy Bank
- Alliant Credit Union
- Ally Bank
- America First Credit Union
- American Express
- Arvest Bank
- Aspiration Bank
- Axos Bank
- Bank of America
- Bank of the West
- Boeing Employees’ Credit Union
- BMO Harris
- Charles Schwab
- Citizens Bank
- Citizens Trust Bank
- Comerica Bank
- Commerce Bank
- Compass Bank
- Consumers Credit Union
- Discover Bank
- East West Bank
- Fidelity Bank
- Fifth Third Bank
- First Citizens Bank
- Flagstar Bank
- Frost Bank
- nbkc bank
- OneWest Bank
- PenFed Credit Union
- Peoples Bank
- PNC Bank
- Radius Bank
- South State Bank
- State Employees Credit Union
- Synchrony Bank
- TIAA Bank
- Umpqua Bank
- Union Bank
- Valley National Bank
- VyStar Credit Union
- Wescom Credit Union
Setting Up Direct Deposit
If you have a steady income, you may be able to get a checking account at a bank or credit union if you are willing to sign up for direct deposit of your check. By setting up direct deposit, the bank may be more willing to work with you regardless of your past ChexSystems problems.
Before Opening a New Account
If you know you have problems with your ChexSystems record, it’s in your best interests to find out the bank’s policies beforehand. This is because some banks will open an account for you and check your ChexSystems report after the account has been opened.
If problems are found, your account will be closed, and the bank will give your initial deposit back to you. Unfortunately, this means you may be without your initial deposit for some weeks, as the bank usually mails a check when they close an account and don’t issue a direct refund.
Prepaid Debit Cards & Other Options
If you can’t find an account that works for you, there are some other avenues you may be able to explore. For example, some companies offer prepaid debit cards, which allow you to load your funds onto the card and use it to make payments. Essentially, these types of accounts work like a checking account without the ability to write checks.
In some instances, they even have online bill pay to allow you to still meet your financial obligations without a checking account. However, it’s important to read the terms and conditions to ensure you aren’t being overcharged for using the card. Some of them can charge up to $1 or more per transaction.
Track It Like a Credit Report
Keeping track of your ChexSystems report should be a part of your overall credit maintenance. Just as you keep track of what the three major credit bureaus have listed on your credit report, you should also regularly examine your ChexSystems report for any errors. Doing so can save you a lot of hassle if you ever need to open a new bank account in the future.
While ChexSystems does not directly recommend whether you can open a new checking account. However, the information provided by them can and will affect your ability to obtain one in the future.
Your best option, if you’ve had an account closed due to non-sufficient funds in the past, is to be aware of the issue. Then, look for banks that will accept your hard-earned money despite your past problems.