- ChexSystems is a consumer reporting agency that banks use to assess your banking history.
- If you have a negative banking history on ChexSystems, you may be denied from opening an account.
- Some banks offer second chance bank accounts, which do not review your banking history.
When you apply for a new bank account, many banks use a national consumer reporting agency called ChexSystems to find out if you have any negative banking history. Depending on how your ChexSystems report is assessed, you might be denied from opening an account at a bank or credit union.
If you are looking for institutions that do not use ChexSystems, then you might be interested in exploring the best second chance bank accounts.
What is ChexSystems?
ChexSystems is a national consumer reporting agency that gathers information on your bank account history.
"Similar to when somebody is looking to open a credit card or obtain any kind of loan or credit, and they use one of the three large bureaus for credit score reporting history to determine risk factors, there's a system in place for checking accounts," explains David Rothstein, senior principal at the nonprofit organization Cities for Financial Empowerment Fund.
Many financial institutions use information collected by ChexSystems to gauge your trustworthiness as a potential customer. Rothstein says financial institutions process and analyze ChexSystems data in different ways.
As a result, you could be permitted to open a bank account at one particular financial institution but denied at another bank.
Credit reports vs. ChexSystems reports
The big three nationwide credit reporting agencies — Experian, TransUnion, and Equifax — report your credit and loan activity. A credit report lists all of your opened and closed accounts and loans, credit inquiries, and payment history for up to seven years.
Your credit reports are used to create your credit scores, a three-digit number that represents your creditworthiness. The number is often referenced when you apply for a loan, rental housing, or a job.
A ChexSystems report is a record of activity only on checking and savings accounts that have been closed. It reports only negative activity, which can include bounced checks, unpaid overdraft fees, and potentially fraudulent transactions, for five years from the date of account closure.
Banks and credit unions review these reports, when available, when customers apply for new accounts. A ChexSystems report can also be considered in a child support determination or by court order or federal grand jury subpoena, among other legal circumstances.
How ChexSystems works
ChexSystems collects and shares the following information with financial institutions:
- A ChexSystems Consumer Disclosure Report: This report provides an overview of your bank account history. Under the Fair Credit Reporting Act, certain negative banking history may remain in your ChexSystems report for up to seven years. That said, ChexSystems usually only keeps reported information for around five years.
- A ChexSystems Consumer Score: After reviewing your banking history, the agency assigns a score from 100 to 899. If you receive a high score, you are considered to have a lower risk of overdrawing or having fraudulent activity. If you receive a low score, you are considered to have a higher risk.
Types of entries in ChexSystems
A ChexSystems Consumer Disclosure Report may include the following information about your bank account history:
- Bank account applications
- Bank account closures
- Unpaid bank fees (overdraft fees, monthly service fees, ATM fees)
- Bounced checks
- Checks ordered from an account
- Potential fraudulent activity
The ChexSystems website has a sample report where you can see more information on what's included.
Criticisms of ChexSystems
ChexSystems isn't a perfect solution to screening bank account applicants. A report from the San Francisco Office of Financial Empowerment, published in 2021, outlined how ChexSystems reports disproportionately affect Black Americans, nearly half of which are unbanked or underbanked.
A primary issue with ChexSystems, the report revealed, is the reporting of involuntary account closures by banks and credit unions, for which many customers are not given an explanation or an opportunity to fix the issue. In some cases, the report argued, "good faith activity," such as repeated overdrafts or cashing a bad check, is deemed "suspected fraud" or "account abuse" and not fully investigated before an account is closed. This can result in a misleading ChexSystems entry, which can be "difficult, if not impossible" to successfully dispute, the report said.
How to check your ChexSystems report
You may request a copy of your ChexSystems report every 12 months, or more often under certain circumstances. There is no cost for getting a copy of your report but you must be 18 years or older.
Visit the ChexSystems website and fill out a request form online, by phone, or by mail.
Rothstein recommends going over the report with a credit advisor or banker to make sure it is accurate and you fully understand what's included in it.
Dealing with negative records
You can file a dispute on the ChexSystems website or call the agency's customer service.
When you file a dispute, you'll share the consumer ID number listed on your report and explain what you think needs to be corrected. Attach documents to support your claim, like bank statements or a police report in the event of fraud.
ChexSystems will investigate your claim, and within 30 days (21 days if you live in Maine), you will be notified of the investigation results. If something needs to be corrected, your report will be updated. However, the information will still be listed on your report for up to five years from the date of account closure.
How to improve your ChexSystems score
Always be sure to check the accuracy of your report and then clear any debts you rightfully owe. If you can't afford to pay the full balance, see if your creditor is willing to put together a payment plan or settle the debt for a lower amount.
After paying off your debts, be sure to ask your creditor to update your ChexSystems file. Keep all records of paid-off debts for five years.
Avoiding future ChexSystem entries
Keeping your accounts in good standing is the only way to avoid ChexSystem entries in the future. That includes maintaining a positive balance, paying off a negative balance as soon as possible, utilizing features like overdraft protection and low balance alerts, and monitoring your accounts regularly to identify and report fraud.
Second chance banking options
If you've been denied from opening a bank account at a particular financial institution, you still have options.
Some banks and credit unions have second chance banking, which are bank accounts that do not use ChexSystems to review your banking history. Second chance bank accounts are often checkless accounts or have limited features, so you can easily manage your account and avoid bank fees.
The Bank On Initiative from the Cities for Financial Empowerment Fund, which helps connect unbanked and underbanked communities with bank accounts, may also have choices for you to explore. Bank On has a list of all of its accounts at various institutions on its website, or you can reach out to a local coalition for assistance.
"Most of our certified Bank On accounts are taking into consideration the impact of past history. One of our strongly recommended features for our around 280 certified accounts is to not deny somebody who's on ChexSystems," says Rothstein.
Rothstein adds that ChexSystems also released a Bank On portfolio strategy where financial institutions with Bank On certified accounts can screen customers differently than typical customers.
"It matches the lower risk of a Bank On certified account with the customer who is applying for it," says Rothstein. People who might have been denied an account in the past will still have the opportunity to open a bank account.
ChexSystems FAQs
If you have a ChexSystems report, it means you closed a bank account that had a history of negative activity, such as bounced checks or unpaid fees.
ChexSystems retains information about your bank account for five years from the closure date. You can improve your standing in ChexSystems by checking your report for accuracy, paying off all outstanding debts, and asking your creditor to update your ChexSystems file.
It is possible to open a bank account with a negative ChexSystems report. A couple of financial institutions do not use ChexSystems. These account are often referred to as second chance bank accounts.
Entries stay on your ChexSystems report for five years.
You can dispute errors on your report by filling out an online submission form, calling ChexSystems at 800-428-9623, or completing and mailing a request for investigation.
