What is ChexSystems, and How Does It Work?

ChexSystems is a type of credit reporting agency that works with banks. It’s similar to credit reporting agencies that work with lenders. Banks can use your ChexSystem report as a basis for denying you a bank account if they don’t like what they find on it. That’s why it’s especially important to avoid overdraft fees and other banking errors, as they can come back to haunt you later.

Unfortunately, a bad ChexSystems report is one of the primary barriers to accessing basic financial services for an estimated 6% of U.S. adults who don’t have a bank account — felt heavily among low-income, disabled, and minority Americans.

The good news is that you can still open a bank account with a bad ChexSystems report, and those accounts are even available at some of the best banks. Learn more about ChexSystems and how it works.

Key takeaways

• ChexSystems is a type of consumer reporting agency that is regulated by the Fair Credit Reporting Act.
• Banks and credit unions usually check your ChexSystems report when you apply for a bank account.
• A ChexSystems report only lists negative information (not positive information), but any marks disappear after five years.
• You can check your own ChexSystems file once per year or after you’ve been denied a bank account, and you have the right to dispute any inaccurate information.

What is ChexSystems?

ChexSystems is a consumer reporting agency that gives companies the scoop on whether you’ve had a rough time managing your bank account in the past. Over 80% of banks and credit unions in the U.S. use ChexSystems, or a rival agency like Early Warning Services, anytime someone wants to open a bank account.

ChexSystems is very similar to credit reporting agencies that you might be familiar with — Experian, Equifax, and TransUnion. However, ChexSystems focuses on banking-specific information instead of lending-specific information.

ChexSystem also primarily lists negative account information, such as overdrafts and account closures for mismanagement, while credit reports contain both positive and negative information. So if you don’t have a ChexSystem file, that’s a good thing — it means no one has left a negative mark for misusing past bank accounts.

How do banks use ChexSystems?

Most banks and credit unions will check your ChexSystem report and/or the score generated from your file whenever you apply to open an account. They’re looking to see if any other banks have left notes in your file indicating that you might not be a good customer. If they find anything they don’t like, they can deny your application and must, by law, follow up with a letter explaining why and what your rights are.

Most bank account denials are due to a history of past overdrafts and non-sufficient funds fees (NSF) charged to your account. If you or your bank has closed a past account while it had an outstanding negative balance, this may also appear in your file as a debt and prevent you from getting approved for a bank account.

The good news is these things don’t last forever. Anyone can still qualify for one of the best checking accounts if you wait long enough. Any negative marks on your file will only be listed there for five years. If the mark was made in error or you’ve taken steps to fix the problem like paying up on past debts, then you can dispute the mark on your file to get it changed or even removed.

How to get a copy of your ChexSystems report

You can get your ChexSystems report via two routes: after getting denied for a bank account and once per year for free.

If you’ve been denied when you apply for a bank account, the bank will send you a notice of “adverse action” explaining the specific reason why you were denied. You’ll then have 60 days to check your ChexSystems report for free and make sure it’s accurate or find ways to improve it.

Alternatively, as with your credit report, you get one free opportunity every year to check your ChexSystems report. Whether you’re checking it after a bank account denial or during your annual free pass, you can easily request your ChexSystem report online.

How to improve your ChexSystems report

If you’ve gotten a copy of your ChexSystems report and spotted negative marks on it that aren’t correct and could be hurting you, the Fair Credit Reporting Act (FCRA) gives you the right to dispute that information and try to have it removed. Here’s a step-by-step approach to do it.

1. Fix any legitimate outstanding marks: If you owe money or have any similar negative marks on your credit report that you can fix, take the time to do it now. In cases of fraud, you may need to show a police report in order to remove this information from your file.
2. Gather evidence: You’ll need some way to support your claim when reaching out to have your ChexSystems file cleaned up. Gather copies of your bank statements, letters, driver’s license, or other proof of identity that you can use to bolster your case.
3. Dispute with ChexSystems: You can either mail a dispute letter to ChexSystems (here’s a handy sample letter) or file a dispute online. ChexSystems is required to respond within 21 to 45 days.
4. Dispute with financial institution: In addition to ChexSystem, you should also contact the bank or credit union that listed the mark on your credit report. Ask them to fix the information on your file, which may include removing it or marking it as paid in full.
5. Add a statement to your file: If the above steps haven’t helped and the mark is legitimate, you can add a short note to your file (subject to certain limits) to be displayed along with the mark whenever someone requests your report.
6. File a complaint with the Consumer Financial Protection Bureau: You can also file an official complaint with the CFPB, who may be able to help you if filing a dispute hasn’t resolved the situation.
7. Wait for information to fall off your file: If nothing else is successful, you can at least take comfort that the information isn’t there forever, just for a very long time — five years.

Finally, some of the best banks and credit unions offer a “second-chance checking” account for people who are otherwise unable to qualify based on a bad ChexSystem file. Some come with steeper fees and limitations, but you’ll generally be able to upgrade to a normal bank account after a year or so without any overdrafts or other mismanagement of your account.

Banks that don’t use ChexSystems

Although about 80% of banks use a consumer reporting agency like ChexSystems, not all of them do. If you’ve been denied a bank account in the past, or if you just want to avoid ChexSystems entirely for whatever reason, consider opening an account at one of these banks that don’t use ChexSystems.

SoFi®

SoFi® offers a checking and savings account, and you receive both when you’re approved for an account. We like SoFi®’s high savings APY of up to 4.20% with direct deposit and the potential to receive your paycheck up to two days early.¹²

SoFi® is a member FDIC.³

Visit SoFi® | Read our SoFi® review

Chime®

The Chime® Checking Account has no monthly fees, no minimum balance requirement, and no foreign transaction fees.⁴⁵ You can access over 60,000 fee-free ATMs and get paid up to two days early with direct deposit if you qualify.⁶⁷

Chime’s banking partners, The Bancorp Bank and Stride Bank, are both Members FDIC.

Visit Chime | Read our Chime review

FAQ

Bottom line

ChexSystems isn’t something that factors into most people’s lives very much, but when it does, it can be devastating. If you’re not able to get a bank account, you’ll find it difficult or impossible to get paid, save money safely, and/or buy things.

In addition to checking your report and disputing any errors, here are a few ways you can cope with not having a bank account until you’re eligible again.

• Use prepaid debit cards
• Open a second-chance checking account
• Check with credit unions, which are often more lenient
• Call 211 or reach out to 211.org to get connected with financial services in your area
• Get affordable one-on-one budgeting and debt help through the National Foundation for Credit Counseling