What Is ChexSystems and What Is It Used For?

If you've ever been denied a bank account, ChexSystems is likely the reason.

ChexSystems is effectively a consumer reporting agency that tracks how individuals manage their bank accounts, and it plays a surprisingly large role in whether banks and credit unions will open a new account for you.

In this post, we'll break down exactly what ChexSystems is, what it tracks, how it's used, and what you can do if it's working against you.

What is ChexSystems?

ChexSystems is a consumer reporting agency that specializes in banking history, not credit history.

While credit bureaus like Equifax, Experian, and TransUnion track your borrowing and repayment behavior, ChexSystems focuses specifically on how you've handled deposit accounts like checking and savings accounts.

It is owned and operated by Fidelity National Information Services (FIS), and it functions similarly to a credit bureau in that it collects data from financial institutions and makes it available to other institutions when you apply for a new account.

Every individual who has ever had negative activity on a bank account, be it unpaid overdrafts, returned checks, or suspected fraud, may have a record in the ChexSystems database.

When you apply for a new checking or savings account, the bank will generally submit an inquiry to ChexSystems to review your banking history before approving you.

This means that if you have a negative record, lots of banks will decline your application outright, even if your credit score is perfectly healthy.

What does ChexSystems track?

ChexSystems mainly tracks negative banking activity that was reported by financial institutions where you previously held accounts.

Here's a breakdown of the most common items it records:

• Unpaid negative balances (overdrafts you never paid back)
• Involuntary account closures (the bank closed your account, not you)
• Returned or bounced checks
• Suspected fraud or misuse flagged by a bank
• Excessive overdrafts, even if eventually resolved
• Unauthorized account activity

It's important to note that ChexSystems does not track every banking activity, just the negative stuff.

Paying your bills on time from a checking account, for example, is not something ChexSystems reports on.

This said, the records that do appear are generally kept on file for up to five years before they age off.

How is ChexSystems used?

ChexSystems is primarily used by banks and credit unions to screen applicants before opening new deposit accounts.

When you apply for a checking or savings account, the financial institution will usually run what's called a "ChexSystems inquiry" to review your banking history.

This is similar to how a lender pulls your credit report when you apply for a credit card or loan, except ChexSystems inquiries are specifically tied to deposit account applications.

If your ChexSystems report shows negative items like unpaid overdrafts or fraud flags, the bank may decline your application.

Unlike a credit check, a ChexSystems inquiry is typically a soft pull, which means it generally does not affect your credit score.

Luckily, not every bank uses ChexSystems, and some institutions specifically cater to customers with negative banking histories, so being flagged in ChexSystems is not a permanent dead end.

What is a ChexSystems score?

In addition to your report, ChexSystems also generates a consumer score that ranges from 100 to 899.

The higher your score, the lower the perceived "risk" you represent to a bank considering opening an account for you.

Your ChexSystems score is calculated using factors drawn from your banking history, including the number and recency of negative items on your record, the types of incidents reported, and the frequency of account applications.

A score below 550 is generally considered a red flag to most banks, while a score above 700 is usually considered low risk.

Just make sure you don't confuse this score with your credit score, since they are entirely separate systems measuring entirely different financial behaviors.

Your ChexSystems score paints a picture to deposit-taking institutions of how reliably you manage bank accounts, while your credit score paints a picture of how reliably you manage debt.

How to get your ChexSystems report

Every individual who has a ChexSystems record is entitled to one free copy of their report per year under the Fair Credit Reporting Act (FCRA).

You can request your free report directly from ChexSystems at chexsystems.com, and it will be mailed or made available to you typically within a few business days.

Reviewing your report is a no-brainer first step if you've been denied a bank account recently, since errors on ChexSystems reports do occur and can be disputed.

Once you receive your report, look for inaccurate account details, amounts you don't recognize, or incidents that may have already been resolved but are still appearing.

If you spot an error, you have the right to dispute it directly with ChexSystems, and the agency is required to investigate within a reasonable timeframe.

You can also dispute items with the financial institution that originally reported them, which can sometimes resolve issues faster.

What to do if you have a negative ChexSystems record

Having a negative ChexSystems record doesn't mean you'll never be able to open a bank account.

The single most important thing you can do is review your report and address any unpaid balances that appear on it.

Paying off an outstanding overdraft or negative balance won't automatically remove the item from your report, but some banks will update their records with ChexSystems to reflect that the debt was resolved, which can improve your standing.

Beyond paying off debts, here are a few practical steps to take:

• Dispute any inaccurate items directly with ChexSystems
• Ask the reporting institution to update or remove the item after you've resolved the debt
• Look into "second chance" checking accounts, which are specifically designed for people with ChexSystems records
• Consider credit unions, which are sometimes more flexible in their screening policies
• Wait out the five-year window if the item is already aging and you have no other options

Basically, the goal is to either clean up what's on your record or find banking options that work around it while you rebuild.

ChexSystems vs. credit bureaus: what's the difference?

It's easy to conflate ChexSystems with the major credit bureaus since they both involve consumer reporting, but they serve very different purposes.

Here's a breakdown of the key differences:

• Credit bureaus (Equifax, Experian, TransUnion) track your borrowing history, including credit cards, loans, and installment accounts
• ChexSystems tracks your deposit account history, including overdrafts, returned checks, and account closures
• Credit scores range from 300 to 850; ChexSystems scores range from 100 to 899
• Negative credit items can stay on your credit report for up to 7 years; ChexSystems records generally age off after 5 years
• Credit checks are used when applying for credit products; ChexSystems checks are used when applying for deposit accounts

Your credit score does not affect your ChexSystems report, and your ChexSystems record does not directly affect your credit score.

This means someone can have excellent credit and still be denied a checking account due to a ChexSystems flag, and vice versa.

If you're also working on building or rebuilding your credit score, Kikoff can help you establish positive payment history with no hard credit check to get started.

Conclusion

ChexSystems is effectively a banking history report that lots of financial institutions use to screen applicants before opening new deposit accounts.

If you have negative items on your ChexSystems report, be it unpaid overdrafts, a closed account, or a fraud flag, your options for opening a new bank account can be seriously limited.

The good news is that ChexSystems records generally expire after five years, errors can be disputed, and there are banking products designed specifically for people navigating these situations.

And if improving your overall financial health is on the agenda, Kikoff can help you start building a positive credit history alongside the steps you're already taking to get your banking record in order.