ChexSystems: The key to opening a checking account
What is it?
You probably know that not paying a credit card or loan will show up on your credit report and make it difficult to obtain credit in the future, but did you know that mismanaging your checking or savings account could negatively affect your banking options? While checking and savings account activity does not appear on your credit report, most financial institutions report misconduct to a database called ChexSystems. Types of activity that may be reported to ChexSystems include:
- Having your account closed involuntarily by the financial institution.
- Bouncing checks. Financial institutions will typically only report people who fail to pay the
- non-sufficient fund fees and/or bounce checks habitually, not those that do it once by mistake.
- Overdrawing your account. Being in the red a day or two before depositing funds will not generally get you reported to ChexSystems, but if you fail to add money after a reasonable period or you repeatedly overdraw, the chances are good that you will be reported.
- Committing an act of fraud, such as altering checks or providing false information about your identity.
- Applying for a checking account, ordering checks, or reporting a check or debit card lost or stolen. Most of the time, these activities are perfectly legitimate and will not be held against you, but they can be a sign of fraudulent activity, which is why financial institutions may report them to ChexSystems.
Information can stay on your ChexSystems report for five years unless the source of the information requests removal. If you owe an outstanding debt, paying it does not get it removed from your report early, although your report will show that it was paid.
Positive information is generally not reported to ChexSystems. If you have never had any incidents of mismanagement, you probably do not have a ChexSystems report.
Opening an account with a ChexSystems report
When you apply to open a checking or savings account, most financial institutions will run your name in the ChexSystems database to see if you have a report. Some financial institutions may deny everyone who has a ChexSystems report, while others may only deny people with certain types of activity. ChexSystems itself does not approve or deny applications; it merely provides reports to financial institutions.
If you are denied an account due to having a ChexSystems report, that does not necessarily mean you are doomed to keeping your money under your mattress. First, ask to speak to the branch manager to see if there are any steps you can take to get an account. If you owe money to your previous financial institution, paying it may do the trick. Some financial institutions will also give approval if you take a course on money management. If the financial institution is unable to give you an account under any circumstances, shop around. Some financial institutions don’t check ChexSystems or have second chance accounts specifically for people with a ChexSystems report. Credit unions are often more forgiving of a ChexSystems report. As a last resort, you may be able to get a prepaid debit card. You can have your paychecks directly deposited onto the card and use it at any place that accepts regular debit cards.
Consumer reporting agencies, including ChexSystems, are regulated by the Fair Credit Reporting Act and Fair and Accurate Credit Transactions Act. Below are some of the important rights these laws give you:
- You are entitled to a free copy of your ChexSystems report annually (if you have a report).
- You have a right to dispute errors in your report. In most cases, ChexSystems must investigate and remove any inaccurate information within 30 days.
- Access to your report is limited to those that have a legitimate business need to see it.
- If you believe that you have been the victim of identity theft, you can place a security alert or freeze on your report. An alert notifies financial institutions that your identity was stolen and that if someone tries to open an account in your name, they should verify that it is you. A freeze prevents any institution that does not have a preexisting relationship with you from accessing your report.
- If the information in your report is used to take adverse action against you, the financial institution must notify you of the fact, and you are entitled to obtain a free copy of your report from ChexSystems within 60 days.
Chex Systems, Inc.
7805 Hudson Road, Suite 100
Woodbury, MN 55125