ChexSystems: The Basics

Approximately 80% of all banks and credit unions nationwide are members of, or use, ChexSystems. ChexSystems is a database of information, provided by financial institutions, containing reports on consumers with account mishandling issues in their past.

ChexSystems is used by banks when qualifying a new account. If a report is available, the bank may decide to deny the new account, depending on the policies of the bank. ChexSystems does not decide whether to approve or deny a new account, they only provide information to the bank. If a ChexSystems report is not available for you, this means you have no deposit account history, or you are in good standing with current or previous deposit accounts.

Other information gathered by ChexSystems helps financial institutions with detecting possible fraud. Names of account holders who have reported lost or stolen checks are added to ChexSystems to track the occurrence of claims. This protects against fraud from individuals who make false claims of lost or stolen checks. Additionally, ChexSystems tracks the number of times you have applied for a new account in the past 90 days. This information is used to check whether an abnormal number of new accounts were acquired within a short time, which indicates possible check cashing or kiting schemes.

The best way to stay off of ChexSystems is to never have a report submitted by managing your accounts responsibly. Unfortunately for some, hard times or simple mistakes can lead to the mishandling of an account. Just remember, mistakes can be made by anybody.

Once your name is added to ChexSystems it can stay there for up to five years. The problem with having your name on ChexSystems is that most banks will deny your application to open a new account. However, there are ways of getting your name removed from ChexSystems.

Occasionally, just like some account holders, banks make mistakes too. If you feel a report was submitted by error, or for reasons other than your own, you can dispute the report with either ChexSystems or the bank that submitted the report.

If your report indicates a debt owed to a bank, the bank may remove the report if the debt is paid back. Paying back debts to the bank does not guarantee the report will be removed because banks are not obligated to remove accurate reports due to monies owed to the institution. However, banks are required to mark accounts as paid if a collection amount is paid back.

Although the majority of banks and credit unions use ChexSystems when qualifying new account applications, there are some banks that don’t use ChexSystems as part of their application process. These banks are referred to as non-ChexSystems banks. Non-ChexSystems banks offer similar services of ChexSystems banks; however, they can be difficult to find.

For the people who can’t locate a non-ChexSystems bank in their area, can’t open an account for reasons other than ChexSystems, or are seeking an alternative to traditional banking, second chance banking provides a way for consumers to remain in the banking system. Second chance banking accounts don’t use ChexSystems when qualifying new accounts and are much easier to locate than non-ChexSystems banks.

Hopefully you have a better understanding of ChexSystems and how it works. If you know, or feel, you may be on ChexSystems and would like to examine a free copy of your report, click here. Under the Fair and Accurate Credit Transaction Act (FACTA) amendments to the Fair Credit Reporting Act (FCRA), you are entitled to a free copy of your report once every 12 months.