What is ChexSystems and Why Do Banks Use It?

The banks may compete with each others for customers, but they’re more than willing to cooperate with one another when it serves their interests.  ChexSystems is a perfect example.

The banks want your money, but they don’t want you to open account if you’re likely to close the account with a negative balance or otherwise abuse your banking privileges.

ChexSystems is a service utilized by banks to determine the level of risk they may be facing if they allow someone to open an account.  When people do owe the banks money, have a history of NSF problems, have been involved in fraud or have otherwise engaged in behavior that raises red flags, member banks report the situation.  That makes your banking history available to other banks, who will look at the data when deciding whether or not to provide you with an account.

Being on the Wrong Side of ChexSystems

If you’re ChexSystems report contains the “wrong” kind of information, banks won’t allow you to open an account.  That information stays on your record for five years, so you can end up in “bank limbo” for a  long time if your report isn’t clean.  Trying to live a normal life without a bank is tough, so you don’t want to end up on the wrong side of ChexSystems.

It’s not just a matter of not being able to open a new account.  In some cases, a negative ChexSystems report from one bank can result in another freezing or closing your active account.  It’s also worth noting that some banks will allow you to open an account prior to running the report.  If they later find out that you have a bad report, they can shut down the account.

What Does ChexSystems Think about You?

You might be wondering exactly what’s on your personal report.  After all, it makes sense of have an idea of whether a bank may turn you down for an account.  You may also want the information to clean up messes you have left behind.

You’re entitled by law to a free copy of your report once every twelve months.  Additionally, if you’ve been turned down for an account, you can order a free copy of your report from ChexSystems within sixty days of the decision.  The request process is simple and surprisingly convenient.

Dealing with a Negative ChexSystems Report

If you’re having problems related to a negative ChexSystems report, there are a few things you can do.

First, if the information on the report isn’t correct, you can dispute it.  That may lead to a fixed report and a regained ability to secure a bank or credit union account.

Second, you can take action to resolve the negative items on your report.  If you owe money on an old account, for instance, you can go back to that bank and make good on the amount owed.  This will (or sould) result in the negative information’s removal from your report.  That’s why it’s a good idea to get a copy of your report if you’ve been denied an account–going back and cleaning up your past mistakes is usually the best way to fix things.

Third, you can try to search out a bank that doesn’t rely on ChexSystems when making its account decisions.  Based on the number of websites claiming to have lists of banks that don’t use the service, you’d think that finding one would be easy.  It isn’t.  Most banks and credit unions do use the service.  Those who don’t usually use alternative systems that may have the very same information.

Fourth, some banks offer “second chance” or “fresh start” accounts to those who have poor reports.  They’ll allow you to open accounts with stricter-than-usual requirements.  Most don’t immediately provide check writing privileges, but in many cases, you can “earn” your way into a standard account if you demonstrate the ability to bank responsibly.