What is ChexSystems ?

ChexSystems are a lot like credit bureaus. They are used by banks to determine whether a new customer gets a checking account. However, they maintain and report information differently. It is not up to ChexSystems to decide to open an account for you; that is the bank’s decision to make.

Also, some banks do not use ChexSystems to make this decision. Being a consumer reporting agency, ChexSystems is governed by the FCRA (Federal Credit Reporting Act). The same way you have access to your credit report from the bureaus is the same way you can check your ChexSystems report.

It will be difficult for you to open a checking account if, at some point, you had your account closed because of excessive overdrafts (OD), non-sufficient funds (NSF), suspected fraud, among other issues. To be clear, the problem will come about if you are still in debt to the bank. Banks get information about individuals with the above issues from ChexSystems. Your banking history may be the reason you are denied an account. ChexSystems stores information about bank accounts that were closed due to problems.

Most of the banks in the U.S refer to ChexSystems during an account application process. If you are in their system, it means your account was closed “for cause”. “For cause” here could mean: You provided false information on the account. Too many overdrafts over a short period of time. Not paying overdrafts or insufficient funds. Abuse of debit card, ATM transactions or savings account, Fraud, and Violation of rules and regulations. This list is not exhaustive; there are other reasons.

When your account is closed for any of these reasons, you get into the ChexSystems’ database. The information will be on record for five years. The scoring range for ChexSystems is 100 to 899. It is independent of the bureaus’ scoring system. The fastest way is through the ChexSystems website. You can dispute inaccurate information just as with a credit report or place a system explaining a negative item.

Whether you pay off the amount owed or not, the information remains on file. A paid overdraft will be updated but the information stays in the system for five years—unless you can prove that the account was improperly listed. If a bank denies you an account because of your ChexSystems report, you can freely access your report within 60 days. Not all banks use ChexSystems.

You can look for one that does not and open an account there. Even then, they might want to see your credit report, Telecheck Data or Early Warning System (EWS). A bank that uses ChexSystems might also give you a “second chance”, especially if you only have one or two incidents.

You can also get an account, regardless of your ChexSystems record, if you agree to directly deposit your check (best for someone with a steady income). Make sure you check the bank’s policies before you try to open an account with them. Alternatively, get a prepaid debit card. You can load funds onto it and use it for payments, just like a checking account.