ChexSystems is a reporting agency that retains consumer banking information. However, you’ll only appear in ChexSystems if you have negative bank activity like bounced checks, overdrawn balances, and fraudulent or suspicious activity. If you’ve been reported by a banking institution or retail store to the agency, it can prevent you from opening a new bank account or writing and ordering new checks.
How ChexSystems Works
Unlike other reporting agencies, ChexSystems only contains negative banking activity. This means if you have a clean banking history, you won’t have anything on your ChexSystems report. Banks, credit unions, and retail stores use ChexSystems to screen potential customers and prevent losses due to unpaid checks. Additionally, ChexSystems reports:
- Standard information like name, address, phone number, and email address
- Year and state where Social Security number was issued
- Bounced and/or returned checks
- Bank accounts closed involuntarily
- Unpaid bank account overdrafts
- Account abuse like too many accounts
- Fraudulent account activity
- Check order abuse
- Identity fraud
The goal is to track and verify customer banking activity to reduce financial risk to the banks and retail stores involved. Your best bet is to avoid being placed on ChexSystems or working to pay debts to clear your report. Negative items fall off your report after five years. However, inquiries from banks and retailers remain for only three years.
ChexSystems Consumer Score
Similar to your credit report, ChexSystems also has a score called the ChexSystems Consumer Score. This score rates your risk based on reported activity rather than gauging your financial health. Because the agency collects information deemed as risky behavior that could lead to financial loss, the score is based on the number of risky or negative reported items. The ChexSystems Consumer Scores range from 100 to 899, with a higher score indicating a lower risk of risky banking activity.
How to Request ChexSystems Consumer Score
You can request your ChexSystems Consumer Score. However, unlike your credit report, you can’t view this score online. Instead, you need to request your score by mail or fax.
The Impact of ChexSystems
Having a negative report can have a significant impact on your banking activity. Because most financial institutions, credit unions, and retail stores use ChexSystems, a bad score makes it hard to open bank accounts and order checks. Your name and personal information may also be reported to a check verification service, causing your checks to be declined during a transaction.
How ChexSystems Affects Your Business
ChexSystems doesn’t affect incorporated business accounts in most cases because it’s a consumer-based bureau. However, there are very few instances when banks use it for business accounts. For example, because sole proprietors use their Social Security number as their business identifier, sole proprietorships are subject to ChexSystems screenings and may have a report on file.
Aside from ChexSystems, some banks use your personal credit report before approving you for a business bank account. Good credit scores can give you a leg up when applying for not only a business account but also a business credit card. You can check your personal and business credit scores for free with NAV.
How to Read Your ChexSystems Report
Thanks to The Fair Credit Reporting Act (FCRA), consumers have the right to view their ChexSystems report for free once every 12 months. You can access your free report copy online through the ChexSystems website. The application is easy to fill out; you’ll only need your personal information, including your Social Security number and driver’s license number. You can also choose if you want to view the report online or by mail.
There are several sections in the ChexSystems report. However, the most impactful sections include Reported Information, Check Cashing & Retail Information, and Checks Ordered. I’ve included a sample page and brief description of these sections below.
Once you’ve submitted the application, you can view your file instantly. In the Reported Information section, you’ll find bank information, date reported, account number, and the reason the bank account was reported. You’ll also be able to see the inquiries from other entities and financial institutions where you previously submitted an application.
Check Cashing, Retail & Checks Ordered
In the Check Cashing Inquiry section, you’ll find any inquiries on your account by check verification systems at point of sale and any times you’ve viewed your own report. Any checks that were returned unpaid to retail stores, including department and grocery stores, will live under Retail Information. These sections will be left blank if you have no reported events.
You’ll also see a history of check orders listed by company name and account number under History of Checks Ordered. This section contains check orders that banks have reported as fraudulent, suspicious, or a misuse of check orders. This section will remain empty if you have no negative check order activity.
Ways to Avoid Being Reported to ChexSystems
The most effective way to avoid being reported is to ensure that you avoid negative banking activities like unpaid fees, bounced checks, overdrawn balances, and other fraudulent or suspicious transactions. It is also possible that ChexSystems reports could contain inaccurate information, so it’s crucial to review your report regularly, check for errors, and make the necessary corrections immediately.
Tips to Improve Your ChexSystems Report
- Check your reports regularly: You can receive a free copy of your ChexSystems reports once a year. It’s important to check your report regularly to spot possible inaccuracies.
- Dispute errors: ChexSystems reports could contain inaccurate information. Erroneous negative information can lower your ChexSystems score. Make sure to dispute errors with ChexSystems and the bank that reported the error immediately.
- Payoff outstanding debts: Pay off any existing unpaid balances on your previous accounts or make payment arrangements with the bank. Request that your bank update the payment status in ChexSystems when the debt is settled to help improve your score.
- Learn to manage your bank accounts responsibly: Avoid making negative banking activities and manage your bank accounts responsibly. Monitor your account regularly to ensure it has sufficient funds to cover your checks and avoid overdrawn balances and unpaid fees.
- Ask your bank for overdraft protection: Some banks offer an overdraft protection service to help prevent checks, ATM transactions, and wire or electronic transfers from causing the account’s balance to fall below zero. This prevents overdrawn balances and insufficient funds.
- Setup banking alerts: You may opt to receive alerts every time a transaction is made with your account so you can monitor potential fraudulent transactions easily.
Other Bank Reporting Agencies
Aside from ChexSystems, there are two other consumer reporting agencies that help banks, other financial institutions, and merchants determine whether a customer has a negative banking history. These consumer reporting agencies are Early Warning Services (EWS) and TeleCheck.
EWS helps detect and prevent fraud associated with bank accounts and payment transactions. It screens bank applicants and current account holders for any previous history of fraud or account abuse, forgery, counterfeiting or check altering, and paperhanging or check kiting. EWS also verifies the identity of individuals and authenticates account ownership.
TeleCheck is a consumer reporting agency that retailers use to determine the risks associated in accepting a customer’s check. It helps merchants make a decision about accepting a check as payment on the spot. The TeleCheck system determines the chances of the check being fraudulent or written on an account without sufficient funds. If the TeleCheck system approves a check, the merchant is guaranteed that the approved check is good.
Many retailers pay to use this service to screen check payments made by consumers. Banks and other financial institutions also use TeleCheck to verify if applicants have previous negative bank history before they allow them to open a checking account to help reduce fraud and minimize risk.
What to Do If You’re Denied a Bank Account
Individuals who are denied a bank account because of a negative ChexSystems report may opt to open a second chance checking account. Second chance checking accounts are offered by banks and credit unions that don’t check ChexSystems reports. While second chance checking accounts can help rebuild your banking history, they don’t usually have all the features and services that come with regular checking accounts.
A second chance checking account usually has lower monthly fees that cannot be waived and offers lower withdrawal and debit limits. It does not have overdraft transfer features and has no check writing function. It also has more requirements than a regular checking account, including setting up a direct deposit account. While these accounts don’t offer the best features, they’re designed to help rebuild your banking history.
If you’re in the market for a business checking account and are having trouble due to your ChexSystems report, you’ll need to do some more research. To save you some time, we’ve already done the legwork for you and identified banks that don’t use ChexSystems.
ChexSystems collects information about previous negative banking activity, including bounced checks, insufficient funds, and account abuse. Most banks use ChexSystems when approving you for a new bank account. If you have a ChexSystems report, it’s likely you won’t be approved and instead will need to look toward a second chance checking account or a bank that doesn’t use ChexSystems.