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What You Need to Know about ChexSystems

George Simons | August 17, 2022

Summary: ChexSystems is a credit reporting agency that focuses on the reporting of closed checkings and savings accounts. Here is SoloSuit's guide to ChexSystems, how it works, and how to dispute an error on your credit report.

If you recently applied for a loan or sought to open a new checking account and were denied, you could very well have an issue related to a report generated by a company known as ChexSystems. ChexSystems is a consumer credit reporting agency that is responsible for tracking activity related to closed checking, savings, and other deposit accounts at various banks and credit unions. For example, if you ever bounced a check or a check was returned to you, it is likely you have a ChexSystems profile. While your ChexSystems history does not directly impact your FICO credit score, it can have a negative impact on your ability to open new financial accounts.

What exactly is ChexSystems?

ChexSystems assists banks and other companies that have the right to access your records to assess risk. ChexSystems operates much like a credit bureau in the sense that it collects information about your debts and financial transactions.

Your financial history can be accessed by others via ChexSystems

It is possible for banks and other companies to access financial data concerning you that is maintained within ChexSystems. Though, there are specific rules that apply when a third party formally requests a copy of your ChexSystems report. The governing law is the Fair Credit Reporting Act (FCRA). This federal law allows third parties to request your report under the following circumstances:

  • Business transactions initiated by you (e.g., applying to open a new checking account).
  • Report requests where you provided express written permission.
  • Child support determinations.
  • Subpoenas of your financial records issued by a court order.

Overview of how ChexSystems operates

ChexSystems collects information related to closed checking and related bank accounts. The information it usually tracks and collects includes the following:

  • Any applications you submitted for new checking accounts.
  • The opening and/or closing of a checking account.
  • Any record of bounced checks or returned checks.

Your ChexSystems report may also include red flags such as:

  • Overdrafts on your checking account.
  • Unpaid negative balances.
  • Suspected identity theft or banking fraud.

When you apply for a new bank account, the bank or financial institution in question can request a copy of your ChexSystems report. The bank will then use this information to determine whether to approve you for a new account.

ChexSystems shares certain information with financial institutions

ChexSystems is legally authorized to share the two following pieces of information with banks:

  1. A consumer score generated by ChexSystems.
  2. A consumer disclosure summary report.

The consumer score is based on the information in your ChexSystems Consumer Disclosure report. A higher score is better, as it means that you represent a lower risk to banks.

The consumer disclosure report is a summary of information related to your closed bank accounts, including the types of things listed earlier. Again, this is similar to a credit report, but it focuses solely on banking activity.

How long information remains on your ChexSystems report

If left undisputed, information within your ChexSystems report can potentially remain there for up to five years. ChexSystems can remove it at the request of the bank or financial institution that furnished the information or if credit reporting laws require otherwise

Take these steps to correct an error on your ChexSystem report

If you have noticed an error on your ChexSystems report, you can fight it.

The first step you should take is to obtain a copy of your ChexSystems report. This is necessary in order to determine the reason for why a bank decided not to approve your application. The ChexSystem report will provide a breakdown of specific accounts closed, outstanding debts, bounced checks and more data points that could be helpful in identifying the issues. You are able to request a free copy of your ChexSystems report once every 12 months. You can request your free copy via their automated phone system at (800)-428-9623 or online.

Once you've obtained a copy of your report, you need to identify any errors or oversights and formally request correction. To improve your chances of getting the error corrected, try to gather supporting documents (e.g., payment records or bank statements), then visit the Dispute Information section of the ChexSystems website to submit a dispute.

Once you've formally submitted the dispute, you have the option to allow ChexSystems to contact the bank that reported the false or incorrect information. The other option is for you to mail a dispute directly to the financial institution. If you choose to do it yourself. Deciding which course of action makes the most sense will depend on your unique circumstances.

Here's when to expect a response to your dispute filing

You should not have to wait months to get a response to your dispute. In fact, ChexSystems and your financial institution are required to research your dispute within 30 days of receipt. If one or both confirms that information is incorrect or incomplete, they are legally obligated by federal law to correct the information so it is accurate. If you're not satisfied, you can add a brief statement to your report explaining the problem.

You have banking options when you are listed in ChexSystems

If you are identified within the ChexSystems database, there is a risk that you could be rejected if you attempt to apply for a traditional checking or savings account. If you find yourself in this situation, there are two options to consider.

First, consider applying for a “second chance” bank account. Second chance accounts (also referred to as “lower risk accounts”) are designed for consumers who've encountered difficulties with banking in the past. These accounts typically differ from regular bank accounts and will potentially have more stringent requirements when it comes to deposit minimums. There may also be lower transaction limits and higher monthly maintenance fees.

In addition to second chance accounts, you have the option of using prepaid debit cards to conduct financial transactions. Prepaid debit cards typically enable you to deposit funds, then withdraw cash or make purchases the way that you would with a traditional debit card. The only difference is that a prepaid debit card is not attached to a bank account. This is a drawback since your funds are linked exclusively to the prepaid card, which means if you lose it, you run the risk of losing the funds deposited onto the card.

Summary

  • ChexSystems is a consumer credit reporting agency that collects information on closed deposit accounts at banks and credit unions.
  • The type of activity that ChexSystems tracks is related to issues with deposit accounts, such as bounced checks.
  • You can dispute errors on your ChexSystems report, and they should review the dispute within 30 days of submission.
  • Having a ChexSystems record could make it difficult to get approved for new bank accounts.
  • Prepaid debit cards and second chance checking accounts are alternatives to consider when you're unable to qualify for a standard bank account.

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