When you apply for a new checking account or loan from a bank, it’s not uncommon to have several different checks done on your history. These checks often look for issues such as debt, late payments, and defaulted payments. The results will usually help a bank decide if they will accept your application. ChexSystems is one of those checks.
What is ChexSystems?
ChexSystems is used by banks, much in the same way as they use Experian. It helps banks to decide whether a new customer can open up a checking account with them. Unlike Experian, which checks your credit score, ChexSystems investigates any checking accounts you’ve had in the past, and the reasons they were closed.
ChexSystems don’t make the decision on whether you can open up an account, that still lies with the bank. Instead, it simply reports on your history so the bank can make a more informed decision about whether you should be eligible for a new checking account.
Not all banks use ChexSystems, although around 90% of them do. Many use it along with other history checks, especially if you’re applying for a range of different services. The information obtained through ChexSystems isn’t related to things like your credit history, and it is possible to have a low score and still have good credit.
Also, ChexSystems is regulated by the Federal Credit Reporting Act and the Federal Trade Commission. This is because it’s a consumer reporting body and so needs to be as fair as possible. It also means that as a consumer you’re entitled to see your ChexSystems report, and you can apply for this at any time.
How does it work?
The way ChexSystems works is very simple. It keeps track of all the bank accounts you’ve had, and the reasons they were closed. It only keeps your account on record if it was closed for a certain reason, which could be one of the following:
* Fraudulent activity
* False information on the account
* Abuse of account or band card
* Non-payment of overdrafts or fines
* Violation of the bank’s terms and conditions
There are other reasons your account would be logged, but these are the most common. If you’ve had an account closed for any of the reasons on this list it will show up on a ChexSystems report. The information stays on file for 5 years from the date the account was closed, and can be accessed by any bank running the check.
The scoring system ranges between 100 and 899, with lower scores being worse for you. As mentioned above, it’s perfectly possible for you to have a low score on ChexSystems and a good credit rating, because the two things are unrelated.
It’s worth remembering that you can apply for your ChexSystems report at any time, and that you have access to all the information they have about your accounts. If you have concerns ChexSystems will impact your ability to open a checking account, then research banks that don’t use it.