What Is Chexsystems? the Consumer Report You Must Know That No One Talks About

Chexsystems collects and shares your banking habits and history with financial institutions. This is why it's important to you.

There are quite a few consumer reporting agencies that track different aspects of your financial relationships. Credit bureaus are consumer reporting agencies that focus on credit. There is also a little know consumer reporting agency that collects information about your checking and savings account history.

That agency is called Chexsystems.

Recently, I received a message in our Financial Wellness Road Warrior Facebook group from a member denied a new checking account. She’s working on bettering her finances and decided it was time to switch banks. To her surprise, she was denied and the bank representative mentioned Chexsystems. Our road warrior asked, “What is Chexsystems? And does this mean I can never open a new checking account every again?”

I’ve worked in banking for a little over 7 years. I, too, never heard of Chexsystems until I was trained on how to open new accounts. We were required to run the new customer’s information through Chexsystems. It would respond back with a report that included information on NSF (non-sufficient fund) activity, negative balances on closed accounts, and other types of account abuse connected to financial losses.

I can imagine how frustrating it can be to finally decide to switch banks, but then limited because of past financial mistakes or errors (yes reporting errors can occur with Chexsystems too). Some financial institutions do not use Chexsystems or review similar reports when opening a new checking or savings account. However, they may rely on credit bureau information instead.

If you’re denied a new checking account from one bank, you can look for an alternative that does not use these reports. Some banks offer second chance checking accounts or you can consider an online bank, a credit union, or smart banks (apps that offer financial services and amazing tools often partnered with a bank). You can look for some options in our marketplace.

What is Chexsystems?

Chexsystems is a consumer reporting agency that doesn’t get much attention from financial experts or publications. It is a nationwide specialty agency that operates under the federal Fair Credit Reporting Act (FCRA). They collect information from participating financial institutions about your banking habits. Chexsystems will then share that information with their partners to help them determine risks for opening a new account.

Many financial institutions report your banking relationship to Chexsystems or another agency like TeleCheck. Banks and credit unions are not required to report information but many of them do. It’s their way of sharing information on potentially abusive banking relationships. The information found in your Chexsystems report may be the cause of denial of banking services.

Banks and credit unions report information relating to opening accounts, NSF (non-sufficient funds), and overdraft activities. If a financial institution has lost money due to bounced checks, unpaid fees or overdrawn accounts, they report information like this to Chexsystems.

Chexsystems reports include information such as:

Activity Description When It’s Deleted
Involuntary Account Closure A banking account closed “for cause” (e.g., negative balance, bad checks were written, etc) After 5 years (unless you successfully dispute the listing or the financial institution or ChexSystems deletes the listing sooner)
Bounced Checks and/or Overdrafts Abusive bounce checks and multiple occurrences
Unpaid Negative Balances Outstanding overdraft or nonsufficient funds (NSF) fees or other account charges
Savings Account, Debit Card or ATM Abuse For risky or dishonest behavior (i.e. depositing fake checks, empty envelopes at ATM)
Outstanding Checks in SCAN Database of Returned Checks & Instances of Fraud Checks issued or sent to a collection agency; returned or fraudulent checks
Suspected Fraud or Identity Theft Providing false info on an application or altering checks
Inquiries Applying for new accounts that are initiated by you, a bank, an employer, a creditor, or other “permitted” party If initiated by you: after 90 days or no more than 3 years; Otherwise after 5 years.
Lost Checks & Debit Cards Financial institutions may routinely share information. It’s not specifically negative but can indicate potential fraud. After 5 years or deletion after successfully dispute the listing or is deleted by the financial institution or ChexSystems sooner.
Check-Ordering History from Past 3 Years
Number of Accounts Applied for in Past 90 Days
Social Security Number/Driver’s License Validation and/or Verification

For an example of a Chexsystems report click here and view.

Who can request your Chexsystems Report?

Chexsystems is a private company but operates under federal law. Consumer protection law is written to ensure the accuracy of your information and rights to privacy. You can request your consumer report and others with legal rights can too.

From the Chexsystems website, examples of legitimate requests include:

  • According to your written instructions
  • A business transaction initiated by you
  • Pursuant to a court order or federal grand jury subpoena
  • Your application for a license or other benefit granted by the government, when consideration of financial responsibility is required by law
  • A child support determination, under certain circumstances

Why is Chexsystem Important to Financial Wellbeing?

Having negative information on Chexsystems can limit your ability to use the best banking products. It can impact your wallet. If you’re unable to open a new checking account or get a debit card, it can add financially related stress. You can read more about how Chexsystems can impact your checking account access.

Many who cannot open checking accounts or debit cards become unbanked. They rely on non-traditional banking services that can cost hundreds of dollars a year. In a Nerdwallet article, an unbanked person pays on average $183 just to access their money. It places a bigger burden on those who make less than $20,000 a year.

How to get your Chexsystems Report

You can request a copy of your report directly from Chexsystems. You can do so by clicking here.  If you’re denied an account and Chexsystems was used in the decision-making, you can request a copy of your report as well.

If you find inaccurate information, then follow the dispute process to have this information removed. Discover an outstanding negative balance on an old bank account? You can resolve the issue by contacting the reporting company found on the report.

How to avoid negative information reported to Chexsystems

  1. Communicate with your banking relationships. Explain your situations and if necessary agree to a plan to pay off outstanding charges and fees related to checking accounts and debit card usage.
  2. Have an account overdraft plan. Connect your checking account with a savings account or line of credit. Gain peace of mind knowing your outstanding check is covered and you’ll avoid paying fees.
  3. Ensure automatic withdrawals from closed accounts are switched. Once you’ve closed out an account make sure any automatic withdrawals are changed. Review statements for a year to identify monthly, quarterly, or annual withdrawals that are done automatically.
  4. Review your Chexsystems report once every 12 months. Don’t wait until you’re denied a new checking account. Review your report and ensure information is accurate and help prevent identity theft too. If you see multiple inquiries for new banking accounts, and you’ve never applied for a new account, contact Chexsystems.

One last thing, not every financial institution uses Chexsystems in their decision-making. Many do and you can inquire before you complete an application. Remember, financial institutions can use other consumer reports like credit reports in their decision making. An annual review of your credit report and your Chexsytems report can help you on the road to financial wellness.

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Jason Vitug

Jason Vitug is founder at phroogal, creator of the award-winning project the Road to Financial Wellness, and author of the bestseller and NY Times reviewed book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life.

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