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What to Know About ChexSystems

Your credit score matters, especially if you’re planning to buy a house or you want access to the lowest loan interest rates. There are three credit bureaus that keep track of consumer credit data. What many people might not know is that there are also companies that collect information about savings and checking accounts. One such reporting agency is called ChexSystems. In case you’ve never heard of it before, here’s everything you need to know about it and why it exists.

Find out now: Which checking account is best for me?

What Is ChexSystems?

Believe it or not, you can be turned down when trying to open a new bank account. Even if you’ve spent plenty of time choosing the right checking account, a bank or credit union could reject your application. You could be turned down for a checking account, for example, if you’ve closed accounts in the past for illegitimate reasons or you’ve overdrawn your account on too many occasions.

If your bank denied you a new account, it probably did so after reviewing data from ChexSystems. That’s the name of the most common national consumer database in the banking industry. Two others are Telecheck and Early Warning Services (EWS).

Most financial institutions (80%) rely on ChexSystems. Even some online and mobile-only banks use their products. But there are credit unions and banks that don’t, including Green Dot Bank, United Bank and the Navy Federal Credit Union.

ChexSystems holds information related to the use of credit, savings and checking accounts. With their data, banks, credit unions and other kinds of financial companies can decide whether certain people are too much of a liability to have access to new accounts. Sometimes credit card companies review ChexSystems data before approving someone for new credit. This is possible because of the Fair Credit Reporting Act, which mandates that the reporting agency keep an accurate record of credit and banking activities.

ChexSystems Consumer Scores and Reports

What to Know About ChexSystems

Each of the credit reporting bureaus has a different way of rating consumers and assigning them scores that indicate their level of risk to creditors. Similarly, ChexSystems rates bank account holders on a scale of 100 to 899. As is the case with credit scores, it’s better to have a high ChexSystems consumer score. The higher your score, the less of a risk you pose in the eyes of banks.

ChexSystems reports contain information related to consumer banking history. Normally, they hold on to information for up to five years. ChexSystems files contain credit inquiries and details about bounced checks, debts, fraud, past fees and charges that haven’t been paid.

Wondering how you stack up in ChexSystems? Just like you can view your credit score for free, you can access your ChexSystems report for free on a yearly basis. Getting your consumer score will cost you $10.50. All you need to do is visit chexsystems.com to find out how to order yours by mail or fax.

Errors on credit reports can be disputed and so can mistakes on ChexSystems reports. You can either notify the source of the error directly or ask ChexSystems to do it for you. To send a dispute to the company, you can submit one online, through the mail or by fax.

Are You in ChexSystems?

Not everyone has a ChexSystems file. If you’re in really good standing, you might not have a ChexSystems report at all.

Having a negative ChexSystems record doesn’t automatically mean that you won’t be able to get a new personal or business checking account. But it might lower your chances of success in doing so.

Keep in mind that once you’re in the system, everything in your file is locked in for at least five years. You might have to request that ChexSystems remove your negative information after this period of time. If you filed for bankruptcy, your ChexSystems debts could still be in your report, so you might need to make sure they’re deleted.

If you are in ChexSystems, you can boost your score with better banking habits. That includes not overdrawing your account on a regular basis and paying fees on time. Improving your credit can also work in your favor since ChexSystems takes your credit history into account.

What to Do If You Can’t Open a New Account

What to Know About ChexSystems

Establishing a positive debit and credit history can take time. And lower-income Americans in particular have had a hard time getting approved for new accounts once they’re in ChexSystems. If you can’t open a traditional checking account, however, you might be able to apply for a second chance checking account.

Second chance accounts are designed for folks who’ve made mistakes in the past and who are looking for a fresh start. Multiple banks, including PNC Bank and Wells Fargo have them. The catch, though, is that they tend to come with high fees and strict rules.

As an alternative, you can look for online banks or specific accounts that don’t use ChexSystems. Disputing errors in your ChexSystems file as soon as possible is another good idea since it can increase your chances of being able to open an account.

The Takeaway

ChexSystems provides banks, credit unions and credit card issuers with tools that let them screen potential customers. To avoid getting stuck with a low consumer score, it’s best to be careful about the choices you make when banking and applying for credit.

Photo credit: ©iStock.com/Pali Rao, ©iStock.com/Geber86, ©iStock.com/gofugui

Amanda Dixon Amanda Dixon is a personal finance writer and editor with an expertise in taxes and banking. She studied journalism and sociology at the University of Georgia. Her work has been featured in Business Insider, AOL, Bankrate, The Huffington Post, Fox Business News, Mashable and CBS News. Born and raised in metro Atlanta, Amanda currently lives in Brooklyn.
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