Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.
When you apply to open a new checking or savings account, banks and credit unions do a background check before agreeing to take you on as a customer. ChexSystems is the go-to reporting agency that provides background reports on your banking history.
Reports from ChexSystems, also referred to as consumer disclosures, include information about problems, misuse or fraudulent activity that occurred with your checking or savings accounts. The process is very similar to when lenders check your credit score before giving you a credit card or an auto loan.
Many, if not most, financial institutions rely on ChexSystems to help vet you. We’ve taken a closer look at the information that is included in ChexSystems reports, and tell you what you can do if the reports are preventing you from getting the checking or savings account you need.
- What is ChexSystems?
- Which banks use ChexSystems?
- Which banks don’t use ChexSystems?
- How to avoid having a ChexSystems record
- How to get a free ChexSystems report
- How long do you stay in ChexSystems?
- Is getting a checking account while on ChexSystems impossible?
- How to get out of ChexSystems
- What you need to know prior to opening a new bank account if you have a ChexSystems record
- Alternative checking account options to consider
What is ChexSystems?
ChexSystems is a consumer reporting agency that monitors your checking and savings accounts activity over the course of your financial life. Banks and credit unions report information on closed checking and savings accounts to ChexSystems, which then collects this data to compile reports that financial institutions and merchants can review to help them make decisions about approving you for financial products you’ve applied for.
If you’ve ever opened a bank account in the United States, you’ve probably been screened by ChexSystems. However, unlike the information sent to similar agencies that track your entire credit history, ChexSystems mainly includes reports of accounts with “bad” banking activity, like bounced checks, unpaid overdraft fees, outstanding debt or an account closure due to insufficient funds, among other things.
ChexSystems reports may also include records of check-cashing inquiries you have initiated, check orders you have placed and report inquiries, which show how often you’re applying for accounts. You may also find personal information (like your name and past addresses), records of past identity theft alerts or credit freezes, information about your Social Security number and public records on your report.
Which banks use ChexSystems?
The Fair Credit Reporting Act (FCRA) and the Federal Trade Commission (FTC) regulate ChexSystems, in addition to the other credit reporting companies. This means that a range of financial institutions and organizations can request your ChexSystems report, including:
- National banks and federal branches of foreign banks
- Federal Reserve System member banks
- Savings associations or federally chartered savings banks
- Federal credit unions
- State-chartered banks
Additionally, ChexSystems runs your report upon your request. Cases where you might initiate a ChexSystems report to be opened would include a written instruction or a business transaction (all transactions must be initiated by you), if you’re filing for child support or if it is subpoenaed by a court order or federal grand jury. You’re also entitled to a free copy of your ChexSystems report every 12 months, if you would like to review the information they have on you and ensure its accuracy.
However, keep in mind that if your employer or other (nonfinancial) organizations want access to your ChexSystems report, you have the right to give your consent or decline under the FCRA.
Which banks don’t use ChexSystems?
More than 80% of banks and credit unions use reports like those from ChexSystems when determining whether to approve an application for a new checking account, according to a report by the National Consumer Law Center. So finding financial institutions that don’t use it can be challenging.
Banks and credit unions won’t typically disclose if they use ChexSystems or not when evaluating applicants, but there are a handful of institutions that are commonly known for not pulling a ChexSystems report:
- Chime Bank: This online bank offers checking accounts that come with no overdraft, monthly maintenance, foreign transaction or minimum balance fees. Plus, it offers access to 38,000 free ATMs.
- BBVA Compass: You could qualify for this bank’s Free Checking account option, which has no monthly maintenance fees. If denied, you could fall back on BBVA Compass’s Easy Checking account, which comes with a $13.95 monthly maintenance fee, and the option to upgrade to the free account after one year.
- Southwest Financial Credit Union: This credit union bills its “checkless” checking account as a great option for those who have had trouble qualifying for other checking accounts. And while the account doesn’t include checks, it does provide access to a debit card, e-statements, automatic bill pay, overdraft protection and charges no monthly service fees.
- Capital One: While this bank does use ChexSystems to search for any fraudulent activity in your past, it won’t assess you based on more minor missteps like a bounced check. The Capital One 360 Checking Account comes with no monthly service fees or minimum balance requirements, and provides free access to more than 39,000 ATMs. Even better, it pays 0.2% APY on all balances under $50,000.
- United Bank: This bank’s Gateway Checking account is designed for people who’ve had money issues in the past. It allows those who use it correctly to upgrade to another one of its other accounts after six months. United Bank charges a $10 monthly maintenance fee for the account, and requires you to spend an additional $4.95 per month for online billpay.
- Wells Fargo: This large national bank offers an Opportunity Checking account designed to help those with poor credit or banking history. The account comes with a $10 monthly service fee that can be avoided if you use your debit card 10 or more times a month, receive direct deposits totaling $500 or more a month or maintain a minimum daily balance of $1,500.
- Axiom Bank: This bank also offers an Opportunity Checking account to people who’ve made past mistakes. It charges a monthly maintenance fee of $12.95, though this can be reduced to $8.95 with a direct deposit of any amount. Its perks include debit card access, unlimited check writing, online banking and bill pay.
- Woodforest National Bank: This bank’s Second Chance checking account caters to those with past account challenges and comes with an $11.95 a month maintenance fee and $3 monthly paper statement fee that can be avoided by opting for e-statements. Enroll in direct deposit and the monthly fee drops to $9.95.
- Montgomery Bank: This bank offers a New Start checking account for those with past banking issues. It costs $20 to open but comes with no monthly maintenance fees or account minimums. You also get access to a debit card and online banking.
- Foothill Credit Union: This credit union offers its members a Rebound Checking account. It does come with a $6 monthly maintenance fee and, if you fail to keep a minimum balance of $50 in the account, it will levy an additional $10 fee.
How to avoid having a ChexSystems record
There are several types of banking activities that could cause your ChexSystems report to have negative records. They are:
- Having multiple overdrafts reported in a short period of time
- Falsifying information on your bank account
- Nonpayment of insufficient funds or overdraft fees
- Fraudulent activity
- Violation of banking rules and regulations
- Account closures due to insufficient funds or failure to pay fees
- Bounced checks
Avoid making these bank account mistakes, and you should be able to avoid having negative records with ChexSystems.
How to get a free ChexSystems report
If you’ve made one or more of the banking mistakes listed above, it’s a good idea to check your ChexSystems report. The good news is that you have the right to request your free ChexSystems report once every 12 months to see exactly which banking activity may be working against you.
You can also request your ChexSystems Consumer Score, which ranges from 100 to 899 and serves as a numerical snapshot of your report. Banks and credit unions see consumers with higher scores as lower-risk customers.
Even if you don’t think you have a ChexSystems record, it’s a good idea to request a free report. It shows any negative banking activity that flags your name in their system, which can also be a sign of identity theft. If you want to see what a typical ChexSystems report looks like, a sample report is available on their website.
You can request your free ChexSystems report online, by phone, mail or fax. ChexSystems will send you your report via USPS within five business days.
- ChexSystems phone number: Call 800-428-9623 to go through an automated system to request the report.
- ChexSystems mailing address: Print and fill out the request form and send to this address: Chex Systems, Inc. Attn: Consumer Relations 7805 Hudson Road, Suite 100 Woodbury, MN 55125
- ChexSystems fax: Print and fill out the request form, and fax it to 602-659-2197.
How long do you stay in ChexSystems?
According to the FCRA, a consumer reporting agency report like a ChexSystems report can’t contain negative information that’s more than seven years old, or any bankruptcies that are more than 10 years old. However, ChexSystems removes negative banking information — apart from bankruptcy — after five years. Inquiries that result from consumer action, like applying for a checking account, remain on reports for two years.
Is getting a checking account while on ChexSystems impossible?
Getting a checking account while you have a ChexSystems report showing negative banking history will usually be more time-consuming and challenging than if you didn’t have a record, but it’s still possible.
About a quarter of banks will automatically reject your application to open a checking or savings account if you have a negative ChexSystems report. Another 50% of banks require a branch manager to decide whether to approve or deny your request, according to a report by the National Consumer Law Center.
However, there are still plenty of banks and credit unions that offer checking accounts to people with a negative banking history — but these second chance accounts may come with additional fees or stipulations.
How to get out of ChexSystems
If you’re struggling to open an account due to a negative ChexSystems record, or you want to be proactive in clearing your report, there are a few actions you can take to recover your good standing with ChexSystems.
Your first step will be to request your report from ChexSystems (see the instructions above). After you receive your report, review it for any false or outdated information. If you see any errors, you need to dispute them as soon as possible. You can submit your dispute claim to ChexSystems online, or by mail or fax (all are listed above). You’ll need to print and fill out a request for investigation if disputing by mail or fax, and you can find more information on submitting a dispute on the website.
Once you submit a dispute, ChexSystems opens an investigation. You can also request that ChexSystems contact the source of negative banking information (i.e. the credit union or bank who noted the negative banking history) directly to clear things up. The investigations are typically completed within 30 days — but might be extended if ChexSystems needs more information.
While you can get inaccurate information removed by disputing it, credit reporting agencies may continue to report negative information if it is accurate, per the Fair Credit Reporting Act. The negative records will eventually age off the report.
What you need to know prior to opening a new bank account if you have a ChexSystems record
If you have a record with ChexSystems and are planning to open a bank account soon, there are a few things to keep in mind. You won’t necessarily be denied a bank account with a financial institution — even if you have a record. If you only have one or two transgressions on your report, it’s possible that you won’t have any problems when applying for a new checking or savings account. However, if you do have negative items on your report, opening a new account won’t guarantee that your prior history will improve or be repaired.
Alternative checking account options to consider
If you’ve already applied for an account and have been denied, don’t worry. You have other options for managing your money.
- A second chance bank account. Opening a second chance bank account may mean higher monthly fees, minimum balance requirements or other restrictions like no overdraft protection or no debit card or check privileges. However, it may be the best choice for those who are barred from traditional checking and savings accounts due to their poor banking history. After a period of good behavior using a second-chance account, you can typically upgrade to a traditional checking account. If fraudulent activity caused by you is the reason you’re in the ChexSystems, know that most banks won’t even give you this option.
- Prepaid cards. Prepaid debit cards allow you to make purchases and withdraw cash from an ATM without being tied to a checking account at a financial institution. Instead, you need to load money onto the card before using it, either via a direct deposit from a paycheck or by adding funds at retail locations. You can’t spend more than the balance on the card. Some banks and credit unions may offer these cards, but you can also get them at retail shops like grocery and drugstores. Be warned that prepaid debit cards can come with multiple fees. For example, retail locations may charge for refilling your card or the card issuer may charge a monthly maintenance fee or inactivity fee.
- Money orders. A money order acts like a prepaid check. You must have the cash available to purchase a money order in the amount you desire upfront, and have a specific recipient in mind to receive the sum. They can be a method of paying bills if you don’t have a checking account available to you, though money orders often come with fees, and possibly limit the amount you can send to less than $1,000. You can purchase money orders from retail shops like supermarkets or convenience stores or from the U.S. Postal Service. For example, obtaining a money order from Walmart can cost up to $0.88 in fees depending on the location, while the U.S. Postal Service charges $1.25-$1.70, depending on the amount.