Around 85% of banks and credit unions in the United States use ChexSystems to screen applicants for a new bank account. Despite the prevalence of ChexSystems, very few people have even heard of it, let alone know why or how it works.
Most people only ever hear about ChexSystems once they are denied the opportunity to open a new bank account or a retailer does not accept their check.
Both of these situations are embarrassing, unnerving, and frustrating and represent a personal setback. In this article, we provide you with an extensive overview of ChexSystems and what you can do if you have been flagged by the company.
What Is ChexSystems?
Before jumping into what you should do if you have been flagged by ChexSystems, it is important to understand what it is and why it exists. Simply put, ChexSystems was created under the Fair Credit Reporting Act (FCRA) as a specialty Consumer Reporting Agency (CRA).
The point of ChexSystems is to track the checking and savings account activity of consumers. In many ways, ChexSystems is similar to other reporting agencies like TransUnion, Equifax, and Experian, which collect information about credit card and loan history.
Like all CRAs, ChexSystems is a private for-profit company whose activities are regulated by the United States Government.
ChexSystems And Your Credit Score
Speaking of credit card and loan history, it is important to understand that ChexSystems has nothing to do with your credit score. Even if you have a poor ChexSystems record, banks can still offer you credit. On the flip side of things, poorly managing your credit will not be recorded through ChexSystems.
Instead, ChexSystems makes a huge impact on whether or not a bank will give you access to a checking account. Currently, there are more than 300 million records for consumers in the country through ChexSystems.
How It Works
Financial institutions, like a bank or credit union, provide the checking account information to the ChexSystems company. This includes your name, address, social security number, and whether your bank or credit union sees you as a customer in good standing.
ChexSystems then aggregates all that account information so your full history of bank accounts appears under your name and social security number (or another identifying number). This requires a lot of data management expertise and makes access to this huge database very critical to banks and credit unions.
So, if you want to open an account at your local bank, they will perform a ChexSystems query and be able to see if you’ve had any negative issues with prior banks. This helps the bank or credit union decide if opening an account for you is a risky decision.
It all sounds like a good service to banks and credit unions until you get placed on the ChexSystems blacklist. Either because of no fault of your own or because of unfortunate mistakes or circumstances beyond your control.
Why Did I Get Reported To ChexSystems?
What causes people to get reported to ChexSystems? Below are some of the most common reasons that people are blacklisted by ChexSystems.
Back in the day, people could write a check, knowing that the money wasn’t in their account yet but that it would be by the time the check cleared. This is called check floating. Before the internet and advanced technology, it took a couple of days for checks to process. This meant that check floating wasn’t that big of a deal since you had a couple of days before the money needed to be in your account.
Today, technology means that checks can be cleared within minutes of it being written. If you try to float your check today, it often results in a bounced check, which we will discuss a bit later. Check floating is an easy way to get reported to ChexSystems since you are writing a check with money you don’t have.
Check kiting is not only a way to get reported to ChexSystems, but it is also illegal. Check kiting is when you write a check from Bank A and deposit it into a different bank account in Bank B. Before the check from Bank A is cleared, you withdraw the money from Bank B.
In many ways, check kiting is when you are taking advantage of the check float. As technology becomes more and more advanced, check kiting becomes more and more difficult. Still, this scam is often effective, especially for those who have multiple bank accounts in many banks.
Check kiting will automatically get you flagged with ChexSystems, but it will land you with some jail time too.
If you spend more money than you have in your account, one of two things can happen. The first is you have to suffer the mortifying embarrassment of not being able to pay for what you need. Other times, you can be charged an overdraft fee, some of which being as high as $35.
Sometimes, you may desperately need the money that you don’t have at the moment. If you can avoid it, however, you should try not to overdraft your account. Not only are overdraft fees expensive, but you can get reported to ChexSystems if you have too many overdrafts. Typically, it takes multiple overdrafts for banks to lose patience and report your behavior to ChexSystems.
You must pay any negative balances in your account. Whether the unpaid balance was caused by an overdraft or insufficient fund charge, you must pay it off. Make sure that your account is even or in the positive, or else you may get reported to ChexSystems.
If you are switching banks, you need to close the account. You should not just open up a new account and call it a day. If you just open a new account, your old bank account will still be active and accruing fees. This can cause you to have an unpaid balance, which, as we already discussed, gets you reported to ChexSystems.
Incorrect Account Information
Always make sure that you provide the correct account information when opening a new bank. If you open up a new account in somebody else’s name, you are committing fraud. This will both land you a flag in ChexSystems and give you a stint in prison.
Whenever you sign the account application, you are stating that every bit of information provided is accurate and true. Even if the information has changed after you signed the document, you must update your account information.
Bouncing a check is when you write a check knowing that you don’t have the money to cover it. Even with overdraft protection, your bank will count bouncing checks as negative activity. You will get reported to ChexSystems for bounced checks and will be seen as a high risk to other banks and credit unions.
What Can You Do?
If you have been notified that you have a negative ChexSystems report, there are a couple of things you can do. You will need to decide whether or not you want to dispute the negative entries. We will talk about this later on.
Whether or not you decide to dispute the entries, you need to take proactive steps to ensure you don’t get reported again. This is what you should do to make sure you don’t get another negative ChexSystems score:
Know How Much Spending Money You Have
The first step to getting a good ChexSystems score is knowing how much you can spend. Use online banking features that your bank provides. You should also use a check register.
Using both an online banking feature and check register means that you know at all times how much money you have to spend, even before the money from your check has been cashed. If you don’t use both, you could overestimate how much money you have in your account.
Think about it like this: Your account might show that you have $200. Looking at your banking app, you may go to the store to buy some groceries and personal items. You forgot, however, that you wrote a check for $150 to your cable company. It hasn’t gone through yet, but you really only have $50 in your account.
You forgot about your check, though, and you spend $80 at the grocery store. This will make your check bounce to the cable company since you overspent at the grocery store.
This scenario shows that the money on your banking account doesn’t necessarily reflect how much spending money you actually have. Always make sure you know exactly how much money you can spend before writing any checks or spending money.
Update Your Contact Information
Always update your contact information often. Many people get into trouble because the contact information is out of date and they don’t check their account all too often. Without updated contact information, you might not know that you have an overdraft fee or unpaid balance.
Just taking a few extra minutes to update your contact information ensures that you are always notified of a fee or unpaid balance. This will prevent you from being reported to ChexSystems for something as simple as paying for a fee you can afford.
Be Smart With Overdraft Protection
Here at BankingElevate, we are not fans of exorbitant fees for overdraft protection. We recommend selecting a bank with either overdraft protection for low fees or no overdraft protection at all. This is especially true if you write very few checks. Today, most people use account debit cards and cash more than checks. This means that paying $35 for overdraft protection may be a complete waste of money.
For this fact, we often recommend opting out of overdraft protection. This will save you a lot of money down the line.
If you do decide to get overdraft protection, though, be smart about it. View it as a safety net, not something to take advantage of. If you take advantage of overdraft protection, you will have more problems in the future, one of which is being reported to ChexSystems.
Get Your ChexSystems Report
If you have not been rejected by a bank, you are entitled to one free copy of your ChexSystems every year. Even if you have had no problems setting up an account, it can always be helpful to see your score and learn from it.
You can also get a copy of the report if you have been rejected in the last 60 days. In most cases, your score will not be included in the report, but you can buy it through ChexSystems.
If you want your report, we recommend getting it mailed or faxed. We often discourage getting your FACTA Free Annual Report online because of the dispute process. If you do need to dispute an entry, ChexSystems will have the upper hand if you obtained it online. Dodge this mess by getting the report mailed or faxed to you.
Find Another Bank
If you have been flagged by ChexSystems, you can be blacklisted for five years. This will make opening a new account an absolute nightmare. Luckily, not all banks use ChexSystems, though most do. If you know that you cannot dispute your entries, you may want to find another “No ChexSystems Banks.” This is a great option since your ChexSystems score will not be accounted for.
Still, you won’t be able to just run to a new bank across the street. Finding a bank that does not use ChexSystems will take diligence on your part.
Frequently Asked Questions
What if there has been an error?
If you feel that an error has been made on your ChexSystems report, you have the right to dispute every entry. Although it is not guaranteed that the information will be removed from ChexSystems, you can still dispute entries if you think it will help with opening a new bank account.
Know that the dispute process for ChexSystems is confusing and lengthy. We have detailed the dispute process extensively on our sister website, CheckingExpert.com. We recommend looking through this process beforehand so that you aren’t caught off guard and know what to do to put your best foot forward.
How long will I be in ChexSystems?
Typically, those who have been flagged by ChexSystems will be in the system for five years. However, certain circumstances can cause you to be in the system for more or fewer years.
For example, disputing a listing can cause you to be removed sooner, although this is not guaranteed. You may also be removed from the system if the bank provides new information, such as you paying off your outstanding balance.
To be safe, though, you should expect to be in the system for five years before the listing is removed.
What happens to the accounts I already have if I get flagged by ChexSystems?
Since the biggest side effect of a bad ChexSystems score is being unable to open a new account, many people assume that the accounts they already have are safe. Unfortunately, you can find your current bank accounts frozen after you have been flagged in ChexSystems.
This is especially true if you have more than one account in different banks. Say you have had issues with one bank in particular. Their report to ChexSystems could cause your other bank accounts to be frozen. Even if you don’t have more than one bank, though, you can still have problems with your account if you have a poor ChexSystems report.
Occasionally, financial institutions will recheck their systems to see if any of their customers have been reported. If they find that you or another customer has been reported, they may freeze or close your account. Even if you have been with the bank for years, it could still happen to you.
Where should I get my checks?
If your account is still in good standing and you need new checks, be careful where you order your checks from. Some check manufacturing companies also share your information with ChexSystems. If you’re already in the system, you can get reported to your new bank for ordering checks. Once again, this can cause your bank account to be frozen or closed.
Places like Designer Checks, Current Checks, and Checks Unlimited are places where people are frequently flagged for buying their checks. You should opt for places like Harland Clarke or Checkworks if you want to buy new checks without getting flagged.
Since very few consumers know of ChexSystems, thousands of people every year are denied the opportunity to open new bank accounts because of their ChexSystems score. Due to the misinformation about ChexSystems, it seems entirely unfair that people are penalized for something they knew nothing about.
Here at BankingElevate, we recommend finding an affordable bank that does not use ChexSystems or charge extremely high fees. Even if you have a poor ChexSystems score, you can still get accepted by these banks, allowing you to get back to your life faster.
To date, BankingElevate has helped countless people like you open bank accounts at No ChexSystems banks. We have selected these banks based on checking account features, acceptance rates, benefits, and fees, making them the best banks for you. Check out these banks to open an account today.