ChexSystems is a consumer reporting agency, which was established under the Fair Credit Reporting Act (FCRA). The agency collates shared information about deposit accounts held by the clients of financial institutions which sign up to the service, that is then fed into a database used to perform risk assessment checks upon customers seeking to open new accounts by over 80% of U.S. banks. In this sense, it is merely an information provider. However, around 25% of financial institutions adopt a blanket zero-tolerance policy towards negative data stored in the database, whilst others take certain types of activity flagged by ChexSystems into consideration as part of their decision-making process, or – as is the case for around 50% of U.S. banks – require the approval of a branch manager.
The denial of an application to open up a checking or savings account at a financial institution is often due to negative data recorded against your name in a database run by the consumer reporting agency ChexSystems, or one of its smaller rivals such as Early Warning System, or TeleCheck.
What rating system is used by ChexSystems?
ChexSystems assigns a numeric score to each individual, which is called a ‘QualiFile’ Score (however, we will simply refer to this score as your ‘ChexSystems score’ for ease of reference). The point system runs on a scale of 100 to 899. The closer you are to 100, the worse your score is considered to be. Its purpose is similar in nature to that of the credit score. However, whilst your credit score is always taken into consideration when a financial institution is deciding whether or not to lend money to you, not all financial institutions will also take into consideration your ChexSystems score for this purpose. Your ChexSystems score is predominantly used to assess the risks of providing you with a checking/deposit account.
Do I need to request my ChexSystems score?
You are entitled to request a free report from ChexSystems once every 12 months, by clicking on the ‘Free FACTA Report’ link located on the left-hand panel on the ChexSystems homepage, also provided here. As you will see, you can request your ChexSystems report online, or by phone, letter or fax. Follow the instructions on the website in line with your preferred method. If your report is clean, there is no need to pay for a ChexSystems score as it should be unblemished. On the other hand, if your report contains negative data, you are advised to request your actual score and attempt to clear the negative data held about you in the database.
How can I request my ChexSystems score and how much will it cost?
Should the need arise, you can request your ChexSystems score for free once every 12 months. You are also permitted to receive your score following a denied application to open a bank, either verbally or via a written notice, should the bank wish to provide you with this information. There is no obligation on the bank to do so.
In order to can request your ChexSystems score, you must complete the form provided on ChexSystems’ webpage here and send a letter, or a fax to the address and number listed on the document. It is not currently possible to find out your score online or by phone. You cannot find out your score from any third party vendor so do not be fooled by scams purporting to obtain this for you. If you request further confirmation of your score within a 12-month period, you will be required to pay a fee of $10.50 to ChexSystems.
You must be at least 18 years old to request and receive your ChexSystems score. Any younger and an adult will need to submit the request by mail on behalf of that child, including the information requested at the bottom of the ChexSystems page here.
Where the bank is happy to disclose your ChexSystems score, the notice must include certain pieces of information as stipulated by the Fair Credit Reporting Act (FCRA):
- Your ChexSystems score
- Other consumer scores used in the bank’s decision
- Any factors that had a negative effect on your ChexSystems Score
- The date upon which your ChexSystems Score was calculated
- The name and contact information of any consumer reporting agencies that supplied them with information used in their decision-making process
If the bank makes your score available, they also have to tell whether any other consumer scores were used in their decision, any factors that negatively affected your score and when your score was calculated.Rebecca Lake, My Bank Tracker
How is my ChexSystems score calculated?
- ChexSystems consumer report
- Consumer credit reports
- Data from the ChexSystems DebitBureau (an agency which compiles data on bank accounts)
- Employment history
- Information in the public record stored in LexisNexis (e.g., bankruptcy notices, criminal convictions and residential history)
- Payday loan history
How do banks use ChexSystems scores when deciding who to accept or decline for a checking account?
According to information received in March 2012, ChexSystems provides “cutoff” segments, a consumer classification system which banks use to approve or decline consumers in line with their risk appetite. Consumers which pose the least risk are classified as ‘averse’, which covers scores from 580 to 899. Consumers posing a moderate risk are classified as ‘moderate’, which covers scores from 545 to 579. Consumers which pose a more significant risk are classified as ‘aggressive’, which covers scores from 525 up to 544. Naturally, anything less than that and most banks will lack the appetite to conduct business with consumers possessing such scores. Consumers have been denied for checking accounts with scores of 174, 295 and 553.
Remember that on the ChexSystems scale of 100 to 899, the lower your score is, the more likely it is that banks will be concerned that your account will frequently have a negative balance, and that fees will be left unpaid, or unpaid for prolonged periods of time. Therefore, a score above 580 is ideal to maximize your chances of being accepted for a checking account.
Other scores you may see associated with your ChexSystems report are ‘9998’ and ‘9999’. Don’t be alarmed: 9998 indicates that the individual associated with a specific Social Security Number is deceased; and 9999 indicates that there is not enough data available to form a score for the applicant. If the individual associated with a specific Social Security Number is not deceased, you can contact ChexSystems using the information here and request an amendment to the account.
How long will negative data about me remain in ChexSystems?
Although, the FCRA stipulates that negative information should not be held for more than 7 years, or, with regards to bankruptcies, any information that is more than 10 years old, according to ChexSystems itself, negative data not relating to bankruptcy will be removed from your ChexSystems report once a period of 5 years has elapsed from the date of the data being captured by the database.
How can I improve my ChexSystems score?
- Keep track of how long it takes for deposits to be credited to your account and double-check your balance before making payments, particularly if you are often at risk of going into the red
- Make sure that there are no outstanding fees to be paid, all checks have cleared and that no further deductions will be made from the account by previously established automatic debits prior to closing a checking account. Be sure to confirm with companies applying a direct debit how long it may take for their systems to process this payment change.
- Request a free copy of your consumer report every year from ChexSystems and rival companies, such as Early Warning or TeleCheck, as not every bank will use ChexSystems.
- Review your reports each year, looking out for errors and evidence of fraud in order to monitor and maintain your overall financial wellbeing.
- Pay off debts in line with instalment arrangements on time, or pay off debts completely finances permitting.
- Set yourself up with banking alerts any time a transaction is made with your card so that you can track potential identity theft more easily.
- Prioritise your relationship with your bank and be sure to communicate with them immediately when you realise you cannot make a payment that is due. Work with them to formulate a plan for paying off your debt in a timely manner.
- Update ChexSystems by sending them evidence that a debt has been paid off and request removal. You may find that the next report you request will no longer contain reference to it.
- Consider asking your bank to provide you with an overdraft protection service.
- Request text message alerts in order to be notified when your balance is getting low.
- Pay by check unless you are absolutely certain that there are enough funds in your account to finance them.
- Give out your PIN number and if you do, make sure that it is changed after.
- Close an account by depleting available funds – contactyour bank to make sure it is closed officially in order to avoid unforeseen bank charges.
- Open and close accounts too often – this is viewed upon negatively by banks.
What options are available to me if I cannot access mainstream checking accounts?
There are a range of options available to you if you choose not to dispute your ChexSystems record and would prefer to wait 5 years for the information to be removed from the database.
Not all financial institutions rely upon ChexSystems for decision-making purposes. Credit unions in particular are rather forgiving of ChexSystem report histories. Further still, some financial institutions even offer ‘second chance’ accounts, specifically designed for those with a low ChexSystems score. Finally, prepaid cards are relatively easy to obtain, irrespective of negative data in ChexSystems, as they don’t use the database or those of its rivals such as Early Warning System or TeleCheck, to approve your request.