What is ChexSystems and Its Impact on Credit Report

When you are trying to open a new checking account, but it gets denied, the reason could be the negative financial record in your ChexSystems report.  While a credit score tracks your borrowing habits (i.e., loans, credit cards), the ChexSystem report tracks your banking activity (i.e., your bank account records and your activities related to those accounts) and issues consumer reports to credit unions and banks. Banks check this report to determine whether they can allow you to open new checking accounts, business accounts, etc. So, if you get denied or you have been blacklisted from ChexSystems, in this blog, we’ll discuss which steps you can take.

What Is a ChexSystems Report?

ChexSystems is a reporting agency governed by the Fair Credit Reporting Act (FCRA). Similar to credit bureaus, it tracks and reports your banking activities and past account problems across banks and sends consumer reports to financial institutions and credit unions. The ChexSystem report can flag suspected fraud activity (if any), non-sufficient funds fees, and returned checks on accounts under your name, which can prevent you from getting approved for a new checking account. A typical ChexSystems score can range from 100 to 899. However, it does not impact your credit score like FICO or VantageScore directly.

What Is ChexSystems Used for?

• Risk Assessment: The ChexSystems report typically records your checking and savings account applications, openings, closures, and negative activity to generate a risk score (100–899). This serves as a risk evaluation for your application to financial institutions, such as banks, and helps decide whether to approve a new account.
• Flags Negative Items: ChexSystems works like an account verification that flags banking-related issues, such as repeated overdrafts and bounced payments. It not only prevents you from opening a new account but can also lead to financial issues that can damage your credit rating in the long run.

What Does ChexSystems Track?

• Account closures: Account closure and the reason for closure, i.e., voluntary or forced closure by a bank due to repeated overdrafts or policy violations.
• Unpaid negative balances: Overdue bank charges, overdrafts, returned or bounced checks, non-sufficient balance fees, and any penalty bank charges that were not settled. 
• Fraud activity: Any past reports of suspected fraudulent activity, such as identity theft, account misuse, or unauthorized transactions flagged on accounts under your name.
• Misuse of banking services: Any negative financial patterns of misuse, such as excessive overdrafts, ATM misuse, or suspicious debit/credit card activity that violate bank policies.

How Can I Get Out of ChexSystems Records?

To get out of ChexSystems, you may start by requesting your report, disputing any errors, and resolving negative items like unpaid fees or overdrafts by paying them off. But if your banking history is truly bad, you may need to focus on rebuilding with a "second chance checking account" or an online checkless checking account while waiting for negative marks (usually 5 years) to expire. Additionally, you should also take steps to assess any indirect impact it may have on your credit report. 

Here’s a step by step break down:

1. Get Your Report & Identify Issues

You can fetch your ChexSystems report for free from ChexSystems.com. Check it carefully for any mistakes, fraudulent/suspicious entries, or outdated information that may be negatively impacting your report. 

2. Disputing Errors (If the report has inaccuracies)

First, you should contact the bank/financial institution to correct the information, and if your claim is valid, they can contact ChexSystems on your behalf. However, you can also take action by directly reporting the error using the ChexSystems dispute process online, by mail, or by fax. Additionally, you should attach copies of proof to support your dispute, like bank statements, payment receipts, etc. 

3. Work on Resolving Negative Items (If no errors)

If there are no errors and you legitimately owe any overdue balance, you can work on resolving the issue. Here’s how:

• Pay off the overdue/overdrafted fees: Settle the outstanding balances or unpaid fees that have been reported by the bank or credit union.
• Ask the bank to update debt status: After settling any pending fees, you can request the bank to update your ChexSystems record to show the item as resolved.  
• Check ChexSystems reports regularly: Going forward, keep an eye on your ChexSystems reports to remedy any unpaid fees early and avoid accumulating any further negative charges.

4. Wait It Out

Negative items typically fall off your report after five years. So if it's an old entry, you may consider just waiting for the 5-year period to end. The negative remark will resolve on its own. Or you can also look into banks that allow users to open a checkless checking account.

5. Rebuild Your Banking Relationship

Look for "second chance" checkless checking accounts or online banks that don't use ChexSystems to start fresh. Such financial institutions may look past your negative banking history. However, you need to ensure that you don’t have further issues such as those in your past. 

6. Improve Your Credit Scores

If you’ve had past negative remarks with ChexSystems, you should also analyze your credit report to see whether it had any negative impact on your credit report as well. For instance, if your credit report shows overdue debt, late payments, or collection accounts, you may need to work on improving your credit scores to strengthen your creditworthiness. For this, you can use the CoolCredit app and get AI insights on the negative items impacting your credit as well as actionable strategies to remedy them. The app not only helps monitor your credit activity but also offers features that help build a healthy credit profile.

Conclusion

ChexSystem report reflects how well you manage your bank accounts, but a low ChexSystems report can lead to getting denied when you try to open a new business or checking account. But it's not irreversible as long as you can take the right steps. By reviewing your report, disputing errors, and resolving outstanding balances, you can remedy the situation to a great extent. However, if that’s not working, you can try opening a checkless checking account to regain access to banking options. However, it's crucial to maintain better credit and financial standing to reduce the risk of future financial setbacks.

FAQs

Q: Can I Open a Bank Account After Being Reported to ChexSystems?

A: Yes, you can, as ChexSystems itself does not approve or deny applications. Financial institutions fetch the ChexSystems reports to analyze your financial behavior, which can sometimes lead to denials for new account opening. However, in that case, you can open a “second chance account” at a bank that doesn’t consider the ChexSystems report for account opening.

Q: How Long Does It Take to Be Removed from ChexSystems?

A: A negative item on your ChexSystems report can stay on your record for five years, even if you pay it off. However, you can get it removed sooner if it's erroneous by disputing the error/inaccuracy. 

Q: What Banks Check ChexSystems Report?

A: Most banks in the U.S. check the ChexSystems report before authorizing the opening of a new account. So, if you have any negative items on your report, like overdrafts or unpaid fees, you may not be able to open a new checking or deposit account.

Q: What Bank Does Not Check ChexSystems?

A: There are various major banks like Chase and Wells Fargo that don’t check ChexSystems, but they may use a separate EWS (Early Warning System) as an alternative. There are also online banks and financial technology platforms like SoFi, Varo, Go2Bank, and Chime, which may allow opening a checkless checking account.

Q: How to Contact ChexSystems Customer Service?

A: The automated system is available 24/7 for general information. However, if you need assistance from a representative, you can get in touch with ChexSystems customer service by calling 1-800-428-9623 during normal business hours, 8 am - 7 pm CST, from Monday to Friday.

Q:Are There Any Ways to Clear Your ChexSystems Report Faster?

A: There are a few ways:

• Disputing errors: If there’s any incorrect information, file a dispute with ChexSystems. They usually take about 30 days to investigate and potentially remove it if your claim is legit. 
• Pay the balance: If the overdue balance is pending, you should pay it off and ask the bank to update the debt status to "paid" or "settled." While it may not immediately raise your ChexSystems score, this can still make your application look more favorable than before. 
• Wait for the 5-year period to end: If the negative item is pretty close to its five-year mark, simply waiting it out is a valid strategy, as it will drop off on its own.