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How Does ChexSystems Work?

ChexSystems Inc. is a consumer-reporting company in the United States that is administered by the Fair Credit Reporting Act (FCRA) and other applicable laws. Its function is similar to that of credit reporting agencies such as Equifax, Experian, and Trans Union. However, instead of facilitating the credit standing of the consumers, ChexSystems is responsible for monitoring the bank activities of the latter. Your ChexSystems report will include records of your banking activities.

Aside from this, they also deliver account verification services to their member banks, credit union and other financial institution affiliates in order to help these institutions recognize account applicants who may have a record of account mishandling. In turn, member financial institution affiliates will report errant activities of consumers to ChexSystems and that information will be shared amongst the network of member banks and financial institutions.



The matter about ChexSystems should be taken into consideration when one is applying for a checking account. This is because banks and other financial institutions often investigate first the client account’s reputation through a ChexSystems report.

About 80% of banks, credit unions and other financial institutions are members of ChexSystems. They will use the system in their verification process before approving a new application. Normally, a bad track record in managing one’s previous checking account serves as a basis for a denied application, though not every time.

That is why individuals are encouraged to maintain a good standing in all of his accounts in order to qualify for all types of new bank accounts. Being denied access to a checking account can lead to other problems as well. For example, access to a checking account is also a factor in credit related applications such as loans.

What Type Of Activities Will Be Reported To The Chexsystems Database?

These include compulsory closure of one’s account as a result of default of payments, bounced checks or overdrafts. With some luck, you could get away from a ChexSystems report made with small amounts and isolated incidents, if you discover them fast enough and resolve it with the bank. However, if it snowballs into multiple overdrafts and failure to make good on bank fees, your ChexSystems record is likely to be affected. It is better to play safe and not risk it though.

Misuse of ATM and debit cards is another area of concern that will lead to a ChexSystems record. Cases of account holders withdrawing and spending more money than they had in their bank account through the AMT or debit card use can lead their actions to be classified as suspected ATM or debit card abuse. This is so even if all bank fees charged were fully paid off. Harsh as it may seem sometimes, this is the reality of the banking system and ChexSystems.

If banks are unable to collect on any existing debts, overdrafts, non-sufficient funds or any other banks fees owed to them by you, that information with be reported to ChexSystems. That means a flag added to your ChexSystems record.

Other instances of activities that lead to ChexSystems red flags in your record include committing bank fraud and giving of false information in order to get a new account opened. If you open up multiple accounts in three months or less, its also considered a suspicious activity. Banks may view you have having a higher risk in account theft, participating in check kiting schemes and even money laundering.

After you report missing or stolen checks to the bank, that activity will also be reflected in your ChexSystems account. This prevents Chexsystems member banks from honoring lost or stolen checks.

Engagement in these activities does not only result to denied account applications but also to penalties stated in the law.

Records of transactions of consumers with ChexSystems remain in their database for five years. These records can only be eliminated from the system when the origin of the specific information asks for its removal. In some cases also, the history of an individual’s transactions can be deleted in the system if ChexSystems becomes compelled to do so under a related law.

Furthermore, affiliate financial institutions of ChexSystems are not obliged to remove the records of several consumers. However, they should be responsible enough to update the ChexSystems report of these consumers whenever the situation warrants it.

Banks and other financial institutions are losing billions of dollars every year as a consequence of bad checks. Referring to ChexSystems before granting a new account to certain individuals is one of the countermeasures these institutions devised to keep an eye on those people who intend to abuse the system.

As mentioned, the records on ChexSystems stay in the database for five long years. During these years, a person having bad track records in account mishandling might be disqualified in applying for new accounts and loan applications. Because of this, consumers must try their best to keep a good track record in their respective accounts. You can get more tips here on how to keep your checking account in good standing.

If you have your new checking account turned down because of a ChexSystems record, you may have to look into second chance checking accounts to get a new banking relationship started. In order to avoid future trouble, do try to be cognizant of costly checking account mistakes that can bring about a ChexSystems penalty.

As an alternative to a conventional checking account, consider a prepaid Visa card account with no ChexSystems requirements. It works just like a checking account, allowing for direct deposit of paychecks and online billpay (one-time or recurring payments). You can deposit cash into the account from 135,000 retail locations nationwide. In addition, the card can be used anywhere Visa is accepted. Click to learn more: The Perfect Alternative to a Checking Account!


The perfect alternative to a checking account