ChexSystems is a nationwide credit reporting system that collects information about bank accounts that are now closed. It compiles data on red flags, such as whether a bank account was closed due to numerous overdrafts or suspicious financial transactions.
Many (but not all) financial institutions rely on ChexSystems data to decide whether or not to approve an application for a new checking or savings account. If you have a bank account or plan to open one, it’s helpful to understand what goes into a ChexSystems report and why it might matter to you.
Key Points
• ChexSystems is a nationwide reporting system that collects information on closed bank accounts, highlighting negative behaviors like overdrafts and fraud for financial institutions.
• Individuals can obtain a free copy of their ChexSystems report annually to review their banking history and dispute any inaccuracies found.
• Negative information on a ChexSystems report generally remains for up to five years and can impact the ability to open new bank accounts.
• Cleaning up a ChexSystems report involves disputing errors, settling outstanding debts, and practicing responsible banking habits to avoid future negative marks.
• Alternative options exist for those denied a bank account, such as seeking banks that do not use ChexSystems or considering second-chance accounts.
What Is ChexSystems?
Authorized by provisions in the Fair Credit Reporting Act (FCRA), ChexSystems is a risk-management tool for financial entities that are checking an individual’s banking history.
ChexSystems compiles information that can help financial institutions gauge whether a customer is creditworthy before granting them an account. The information that ChexSystems compiles is based only on closed accounts, not current ones, and can reveal whether past accounts were closed voluntarily or due to negative behavior, such as repeated overdrafts or suspected fraud.
Negative marks typically stay on a ChexSystems report for up to five years. If a financial institution sees any kind of negative activity on a ChexSystems report, the applicant may be denied a bank account.
The information in your ChexSystems report can also be used to generate a ChexSystems consumer credit score. This is separate from consumer credit scores generated using information from the three major credit reporting bureaus to help lenders decide who may qualify for a loan.
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What Is In a ChexSystems Report?
Not everyone will have a file with ChexSystems. Those who have a clean banking record may not be listed. However, those who have had bank accounts closed in the past for negative reasons will likely have a report with ChexSystems.
A report will usually include basic identifying information, such as name, address, phone number, and date of birth. It will also include details about your banking history, such as:
• Suspected fraudulent activity
• Non-sufficient funds (NSF) or overdraft activity
• Inquiries (when someone has viewed your ChexSystems report)
• Check cashing inquiries
• Returned checks reported by retailers
• History of checks ordered
• Checking account closures
ChexSystems only collects information for closed accounts, and negative behaviors typically stay on file for five years, as noted above. Current checking accounts do not show up on a ChexSystems report.
Worth noting: If you’ve ever had a security freeze in place, that will usually show up on your ChexSystems report, as will identity theft alerts.
Recommended: Why Is Having a Good Credit Score Important?
How to Get a Copy of Your ChexSystems Report
You can get a copy of your ChexSystems report for free once every 12 months under the Fair and Accurate Credit Transaction Act (FACTA), similar to the way you can request a free copy of your credit reports once a year from the three main credit bureaus.
You can request your ChexSystems report online, by phone, or by mail:
• You can complete and submit the Consumer Request for Disclosure Form online.
• You can call 1-800-428-9623 Monday through Friday, 8:00 am to 7:00 pm CST.
• You can mail a Consumer Request for Disclosure Form to ChexSystems, Inc., Attn: Consumer Relations, PO Box 583399, Minneapolis, MN 55458.
ChexSystems also offers options for people with visual or hearing impairments. In addition, the ChexSystems website details ways to obtain a report for those under age 18 or for an adult for whom you have power of attorney.
There is an exception to this “once a year” free report rule: If you’ve been denied a bank account, you can request a copy of your ChexSystems report to understand the factors behind the bank’s decision, even if less than a year has passed since the last time you pulled a report. The bank is required to specify the reason for the denial, too.
How to Clean Up Your ChexSystems Report
To clean up your ChexSystems report, you’ll first need to get a copy of it, if you haven’t done so already. You can then dispute any negative information you may find. This can help improve your ChexSystems profile if you can get the information removed.
You can reach out to the bank that shared any negative information about your past account and offer to make good on any outstanding obligations. The bank could agree to remove the negative information.
Going forward, you can prevent any further negative information from being reported by practicing good banking habits, such as:
• Maintaining positive balances across accounts so you don’t land in overdraft
• Keeping of checks and deposits to avoid bounced checks
• Protecting your banking information to prevent fraud
• Reporting any suspected fraud to your bank right away
Those actions won’t erase a negative ChexSystems file. But they can help you to stay on your bank’s good side.
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Does a ChexSystems Report Affect Your Credit Score?
Your ChexSystems report doesn’t affect your consumer credit scores directly. FICO® credit scores, for example, are based on how responsibly you manage credit and debt. For example, it can reveal how often you pay bills late, how much of your available credit you’re using, and how often a hard credit inquiry shows up on your report.
Those are some of the main factors that affect credit scores.
But there could be a ripple effect. If your ChexSystems report makes it difficult or impossible to open a bank account, you might have a hard time paying bills when they are due. If, as a result, you send payments late, that could lower your credit score.
Options if You’ve Been Denied a Bank Account Due to ChexSystems
If you’ve been denied a checking account because of a negative ChexSystems report, it helps to know what to do next. You have a few options:
• Clean up your ChexSystems file. Request a copy of your ChexSystems report to understand why you were denied. Review your report for any errors or inaccuracies, and dispute any errors you find. Or, if you owe a debt to your previous bank, you could pay it off and request that the bank remove the mark against you.
If successful in cleaning up your report, you can ask the financial institution you recently applied to if they would reconsider the denial. You might also try opening a savings account with the new bank first, see if you can build a relationship, and then add a checking account.
• Try another bank. Find a bank that doesn’t rely on ChexSystems reports to evaluate potential clients. They are out there and can be found with a little research.
• Consider a second chance bank account. These are designed for people who have been denied a checking account previously. These accounts may have higher fees or more restrictions than regular bank accounts. They can, however, help you establish a positive banking history and, if managed well, transition to a standard checking account in the future.
• Use prepaid debit cards in the short term for spending and bill payment. You can load funds onto these cards (which typically charge fees) and then take care of daily needs with that money.
The Takeaway
ChexSystems is a nationwide reporting system for closed bank accounts. Qualified institutions may access ChexSystems reports to evaluate individuals who are applying for new checking or savings accounts. Being listed in ChexSystems means you likely have negative incidents on your closed accounts (e.g., overdrafts, fraud, unpaid negative balances). This can prevent you from opening new accounts. In this situation, you can focus on cleaning up your ChexSystems report or try some workarounds so you can manage daily financial transactions.
SoFi is among the banks that do not rely on ChexSystems when reviewing account applications.
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FAQ
What happens if you are on ChexSystems?
If you have a file on ChexSystems, you may find it hard to open a bank account. ChexSystems gathers negative information about past bank accounts, such as past overdrafts or involuntary account closings.
Can you remove yourself from ChexSystems?
It may be possible to remove yourself from ChexSystems if your report includes information that’s inaccurate or reported in error. You’ll need to dispute the information through ChexSystems in order to have it corrected or removed from your file. Or if, say, you owe overdraft charges on a now-closed account, you could contact your former bank, pay what you owe, and see if they would remove the negative information from ChexSystems.
How do I know if I am in ChexSystems?
You can request a free copy of your ChexSystems report annually. If there is a report on file for you (those in good standing may not be listed), getting this record can reveal the details of negative information.
How long does a person stay in ChexSystems?
Generally, negative information can stay on a ChexSystems report for up to five years. If you have multiple negative items on your ChexSystems report, the five-year reporting time frame applies separately to each one.
Which banks report to ChexSystems?
ChexSystems doesn’t specify which banks use its reporting system. If you’re unsure whether a bank reports to ChexSystems or reviews ChexSystems reports when you apply for a new account, you can call the bank and ask. You can also ask whether second-chance banking is an option, in case you’re denied a traditional bank account.
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