ChexSystems: The Little Known Database Banks Use for Screening

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Most people are aware of credit ratings; that they are a measurement of how a person may handle their financial commitments based on previous credit behaviors. It’s widely understood that lending services use credit scores to assess various factors when handing out financial loans. They also know the importance of a good credit score when applying for those financial services.

However, what many don’t realize, is how you manage your savings and chequing transactions can negatively affect your standing at a financial institution. Also, if you’re account consistently has negative banking activities, your bank can report that information to consumer reporting agencies, like ChexSystems, that are designed to track such events. Just like credit scores, your debit score will follow you. ChexSystems shares their information with all the banks that use their service. If someone is rejected by one bank due to a poor ChexSystem score, chances are good they will also be dismissed at another bank for the same reason.

People often don’t know they have a poor “debit score” until they apply for an account at a new financial institution and are rejected. Many are declined the option to open a simple chequing account if they have a poor debit, or ChexSystems score. In the most severe cases, people who have been blacklisted by the consumer reporting agency, ChexSystems, are unable to open any kind of bank account and are deemed “unbankable.”

Who owns ChexSystems?

Fidelity National Information Services (FIS) is the owner of ChexSystems. FIS acquired ChexSystems in 2007 with the purchase of eFunds for a cool 1.8 billion dollars. It is regulated by the US federal government legislated Fair Credit Reporting Act (FCRA). They are a global leader of financial technology solutions.

Why do Banks Use ChexSystems?

Fraud protection. Protection against fraud is why ChexSystems is used by 80% of financial institutions in the United States. Losses incurred by fraudulent activity at the personal account level, which is basically loss from bad cheques, cost banks 7 billion dollars in 2016. With potential losses like that, it’s no wonder banks, and credit unions take precautions for even simple chequing accounts. Personal account fraud, resulting in million-dollar-losses, has made headlines across the United States in recent years.

  • In 2010, a Texas resident pled guilty to “defrauding three Texas banks of more than one million dollars.”
  • A man, from Illinois, was sentenced to one year in a federal prison in 2013 for his involvement in a cheque-kiting scheme that totaled up to more than 4.8 million dollars in bad cheques.
  • A cheque kiting ring that cost California banks “at least $15 million” dollars made headlines in 2014, and even landed some individuals on the FBS’s wanted-list.

Applying for a personal chequing account is as enjoyable as renewing your driver’s license but leaves you with writer’s cramp from signing endless mystery forms. Having to make an appointment to get approval from a bank that allows them access to your money may seem silly, but is a requirement in our current, fraud-infested, reality. So, until people stop trying to swindle banks money away from them, the banks will continue to use protective measures, like ChexSystems, when screening new clients.

Account Data is Tracked at ChexSystems

Reports are made to ChexSystems from financial institutions when a chequing or savings account held at their business causes loss, has suspicious activity, or when a new account is being applied for. Only negative transactions are tracked, unlike credit ratings which monitor all credit activity, regardless of its intrinsic value.

What activities are reported to ChexSystems?

Banks report all negative banking activities to ChexSystems. Harmful banking activities can indicate fraudulent or risky banking behavior is occurring within an individual’s account. These warning indicators include:

  • Bounced cheques. Repeatedly writing/depositing cheques that bounce increases the likelihood of risk to the bank and, could be an indication cheque kiting is occurring.
  • Debit/ATM card abuse. One way to be flagged for debit card abuse is to use an ATM to commit fraud. Depositing empty envelopes to withdraw instant cash is fraudulent behavior that will get reported to ChexSystems.
  • Unpaid Overdrafts. Accounts that consistently spend more time in the red than in the black is considered a risky bank practice.
  • Multiple account applications. Several applications to numerous banks in a short time-frame is viewed as suspicious.
  • Accounts closed for cause. Accounts considered “delinquent” can be closed by the banking institution it belongs to without consent from the account holder. If that occurs, the bank will report the information to ChexSystems.

Can ChexSystems affect my credit rating?

No. ChexSystems only tracks negative banking activity and, is used to screen new account applications. The database is not used when processing a loan, or when assessing other credit services. Another difference between credit reporting agencies, like Equifax or TransUnion, and ChexSystems is the CRA’s track both positive and negative activities, while ChexSystems tracks just negative account activities.

However, if a financial services provider requires a loan applicant to open a savings account as part of their credit lending process, ChexSystems will be accessed for that step of the loan application. So, a poor ChexSystems score may indirectly affect an applicant’s loan approval. If the bank cannot approve a new savings account for a loan applicant, they may decline the loan based on that.

Outcomes of ChexSystems Reports

If a financial service company finds your name in the ChexSystems database, it means: within the past five years a report has been made, from a financial institution to the ChexSystems database, that your bank account has been involved in risky banking activities. This information will be included as part of the bank’s overall screening process when determining if a potential client is a risk to their institution. How the banking business will use that information is up to the institution and, varies from bank to bank.

Some institutions, including Bank of America, will consider the severity of the information found in a ChexSystems search and how much time has passed since the reported incident. Clients applying for personal accounts with a history in ChexSystems may not automatically be rejected. But, they may have to accept an account with higher fees and more strict regulations. Two common experiences from having a low score on ChexSystems are:

  • Denied Chequing/Savings Account

In 2012, CNN Money reported “2.3 million people” were denied personal banking accounts they had applied for in 2011. It is unclear if those rejections were determined using ChexSystems data but, the dismissals themselves probably negatively impacted their overall ChexSystem score. Each time an application to open an account is rejected by a financial institution that uses the ChexSystems database, a report is generated, and sent to the consumer reporting company.

  • Second-Chance Account

People with a history of risky bank account management denied approval for a traditional account that might qualify for a “second-chance” bank account. Not all institutions offer the second-chance option, but those that do typically have higher annual fees than their traditional accounts.

Know your ChexSystems Report

Maintaining good credit should include periodic reviews of your credit and ChexSystems scores. Whether or not you’ve had trouble getting approval for opening a bank account in the past, regular monitoring of your ChexSystems activity is a useful tool, even when you’re not working towards improving your score. That way you’ll know what’s on your report and if the information is accurate. Nothing is infallible, and mistakes can occur within the ChexSystems database too. That’s why it’s important to know what’s on your debit report. If an activity has been reported to ChexSystems in error, financial institutions will see you as a risk and may decline your business. Or, subject you to unnecessarily high fees. The sooner the error is found, the quicker it can be resolved. The only way to fix a mistake in the ChexSystems database is by the individual taking the lead to rectify it.

Can I access my ChexSystems report?

Yes. Everyone is eligible for one free ChexSystems report every 12 months. That is a regulated standard set by the Fair Credit Reporting Act (FCRA), consumer reporting agencies are required to follow.

If you’re thinking of opening a new bank account and want a heads up on what the banks are saying about you, simply request your free report using one of ChexSystems report request options. The report will be mailed to you within five business days of ChexSystems receiving your request.

Is requesting a copy of my ChexSystems score free?

No. While a ChexSystems report is free when requested once every 12 months, obtaining your score is not. The cost of getting your ChexSystems score is $10.50. Access to a ChexSystems score requires the applicant to complete a Score Order Form, and submit it via mail or fax.

What do I do if I find a mistake on my report?

Dispute the mistake. Contacting both ChexSystems, and the bank that reported the erroneous activity, is recommended by WalletHub, an online financial resource, to get an error removed. Procedures and tips on how to prepare your information for a dispute can also be found there. On the ChexSystems website, disputes can be submitted using their online portal. How it works is explained in their tutorial Submitting A Dispute.

Avoiding ChexSystems

Finding yourself blacklisted by ChexSystems doesn’t automatically mean you’re unbankable, but it does mean you might have to do some homework in finding a bank willing to work with you. While the majority of banks do rely on ChexSystems as part of their client screening process, there are some that don’t. And, of the 80% of banks in America that use ChexSystems, many don’t rely solely on ChexSystems information for account approvals. They combine ChexSystem data with other factors to create a broader picture that is used to determine if a client is a safe-bet or risk. If you’ve found yourself on the low end of the ChexSystems scale, try out some less-than-traditional banking options.

ChexSystem Free Finances. According to letmebank.com, and lendedu.com some of the best non-ChexSystems banks are:

  • BBVA Compass. The ClearConnect Checking account at BBVA Compass is available throughout the lower 48 States, and applications are available online only. While this bank may not use ChexSystems for screening, they do run credit checks when evaluating new accounts.
  • Chime. Banking for the next generation has arrived with Chime’s uber-laidback appearance and tech-focused banking options. Not for the old-school paper check user, this bank is mostly online and requires clients to have up-to-date mobile devices.
  • Wells Fargo. Founded in 1852, Wells-Fargo has been a main-staple of American banking for over 150 years. Rocked by a recent scandal involving millions of fake accounts being created, Wells-Fargo has rebranded its traditional institution and now offers its Opportunity Checking option for clients who don’t qualify for a standard account. Hmmm, it seems they learned everyone might need a second chance!

Skirt the Issue. Getting around without a bank account isn’t convenient or easy, but it is doable. Ideally, finding a bank that will work with you is the preferred choice, but if time or convenience is an issue consider the following.

  • Money Market Accounts. Often offered by brokerages that don’t run ChexSystems, money market accounts are highly-liquid investment accounts that can be used similarly to a bank account. They usually have high minimum balance requirements and can only be withdrawn from six times per calendar month.
  • Electronic Wallets. PayPal has a host of choices for managing money without needing a traditional banking account. Fees do apply to each transaction. With a PayPal Cash Card, money can be deposited at participating merchants and withdrawn at ATM machines.
  • Prepaid Cards. Easy to get, without a credit check or ChexSystems inquiry, prepaid debit cards are a viable option for those who find themselves in the unbankable category. Bluebird prepaid debit cards have no monthly fees, no transaction fees, and access to an extensive ATM network.

Freezing Out ChexSystems

Getting stuck in a cycle of bad reports hammering your ChexSystems score can feel like an unending vicious loop. Being denied a chequing account will likely be reported to ChexSystems, which may lead that same person to apply for another account at a different bank, who may then be denied again, leading to further decreases in their ChexSystems score. And on and on. Indeed, improving a ChexSystems score seems like an uphill battle. Is there a way to stop the consumer reporting agency from handing out private information about someone’s banking history without their permission?

Yes. Individuals can request a security freeze be placed on their account that will “prohibit a consumer reporting agency from releasing any information in your consumer file without your expressed authorization.”, as stated on the ChexSystems website.

  • To place a security freeze on your ChexSystems account visit their website and input the required information into their online security freeze request. Security freezes do not mean a financial institution will process a new account application without accessing your ChexSystems score. It means that ChexSystems needs to have your expression of consent before they can release your score to a banking business.
  • To lift a security freeze, merely return to the ChexSystems website and follow the instructions to have the freeze lifted. Options include temporary freeze lifting and permanent removal of the security freeze.

Open a bank account with one of the best forgiving non checksystems banks.

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By Cards Nerd