What is ChexSystems & What Does It Mean to Your Business Credit?

What is ChexSystems & What Does It Mean to Your Business Credit

Ever heard of ChexSystems? If you haven’t, you’re not alone. While the name may not ring any bells, chances are you have a long history of doing business with banks for which ChexSystems is an integral part of operations. Moreover, ChexSystems actually plays a critical role in your business credit itself. But now we’re getting ahead of ourselves — let’s have a proper introduction first.

What Is ChexSystems?

At its most basic level, ChexSystems is a check verification service and consumer credit reporting agency that provides details about consumer deposit accounts to banking institutions. So, thanks to ChexSystems, banks have thorough reports on your account history, which is data that may guide their banking decisions with you.

Before we delve too deeply into the relationship between which banks use ChexSystems and its impact on your business credit, we’ll discuss some more information that you need to know to truly understand how ChexSystems functions.

The Truth About ChexSystems

As we mentioned, ChexSystems is primarily a consumer reporting agency, albeit one with a national reach which falls distinctly under the jurisdiction of the Fair Credit Reporting Act (FCRA). Equipped with data regarding closed checking and savings accounts, the company contributes these details to a clientele comprised of banks, financial institutions and other companies with clearance to receive it (again under the FCRA). For the most part, this data’s intended use is to allow clients to more accurately perform risk assessments regarding potential new accounts coming their way.

Perhaps because ChexSystems is so deeply entrenched in presenting sensitive data to banks and other financial organizations, some entities have emerged that pose as affiliates of the company. It’s sensible that consumers may want unpleasant data cleared from their records (more on that in a moment), but any group claiming an ability to clear your file — for a fee, of course — is, in reality, unconnected from ChexSystems and should be avoided. This is not how the company functions: its business lies directly with banks, not reaching out to consumers. Don’t fall prey to some scam looking to tap into your ChexSystems history.

Although ChexSystems does indeed report your financial history to banks with which you’ve applied for an account, the company will never seek to collect fees from you for any reason, nor make any unsolicited calls to individual consumers. In some cases, you may wish to work with ChexSystems yourself to sanitize your record, but this scenario is a bit more complicated than you might be hoping for (we’ll get to that shortly). For now, let’s look at the relationship between banks and ChexSystems itself. After all, this is the most fundamental part of the company’s operation.

Which Banks Use ChexSystems?

ChexSystems’ main function is to protect banks from getting into business with consumers who carry a bad banking history, including check cashing, fraud, unpaid fees and closed accounts. This service is certainly beneficial to financial institutions looking for a straightforward way to screen existing and prospective customers.

But this system can spell trouble for consumers who are saddled with the aforementioned financial baggage, especially since they’ll only be included on the list when they have a negative record. Making matters even worse is the fact that the vast majority of banks use ChexSystems, creating a much smaller pool of banking options for some consumers.

Although you do have some options for removing your record from ChexSystems, your best bet for now is to look elsewhere to open an account. However, identifying which banks opt out of using the ChexSystems database is difficult, since much of the data you’ll find may have changed since it was posted. Moreover, banks don’t often divulge the backend systems they use to onboard new account applicants, citing security reasons.

Thankfully, if you can nail down the information, you’ll discover that several high-profile banks don’t use ChexSystems at all. You might also want to look into local or state banks, credit unions or even online lenders that may or may not use ChexSystems. This list is subject to change, of course, but for now, here are 10 major banks that say “no” to ChexSystems:

  • Axiom Bank
  • BBVA Compass
  • Capital One
  • Green Dot Bank
  • PNC Bank
  • Southwest Financial Federal Credit Union
  • TD Ameritrade
  • United Bank
  • Wells Fargo
  • Woodforest National Bank

This is by no means an exhaustive list, but with a balance of larger financial institutions and smaller banks, the above does give you a representative idea of the cross-section of organizations that have decided not to use ChexSystems to screen new accounts.

Removing Your ChexSystems Record

If you find yourself routinely rejected for a new bank account, there’s a good chance you have something in your financial history that has landed you on the ChexSystems database. But don’t worry — you can find your way off of it. You’ll need a proactive attitude and a bit of time to sort out the obstacle that could be standing between you and your new account. Here’s what you need to do:

  • Get a copy of your report: First you need to request your ChexSystems report so you can uncover why you’re being rejected by banks. Each report features a detailed breakdown of your account history, and you’re allowed to get a free copy of your report every year. Just call ChexSystems or visit the website to get a hold of the consumer disclosure form.
  • File a dispute against any errors you find: If you’re lucky, your ChexSystems report may feature an error rather than any more serious marks against your financial history. Should you discover this is the case, you can more easily take action. Collect any supporting documentation you have to back up your claim that the data is an error, and then submit your dispute online, by mail, by fax or even over the phone. ChexSystems then has 30 days to investigate the disputed claim.
  • Clear any lingering debts in your record: Unless you have some major errors weighing down your credit history, it’s likely that you owe some amount of money to one of your past financial institutions. If you truly want to reclaim your good standing, you would be wise to simply pay those debts. In many cases, you may be able to reach a settlement with your creditors that is less than your original debt. In the long run, simply removing the debts from your record is the best (and only) way out of the financial doghouse.
  • Verify the debts have been removed: Once you’ve paid off your debts, it’s time for the follow-through. Remember, neither the collection agency nor the creditor is as invested in your ChexSystems record as you are, and sometimes updates can slip through the cracks. So keep your receipts and/or confirmation letters that your debt has been cleared, and ask for this data to be cleared from your ChexSystems record once you have confirmation.
  • As a last resort, wait five years: If all your efforts to remove your ChexSystems record fail, rest assured that reports typically fall off your file after roughly five years. While opting for a “second-chance” checking account (i.e., one that has customers with bad banking history in mind) isn’t ideal, it is a way to continue banking and repair your credit until you’re once again qualified to bank with your chosen institution.

Do you still have questions about ChexSystems? Let us know on Twitter @Revenued_com!

Robert Yaniz Jr. has been a professional writer since 2004, including print and online publications. Much of his experience centers on the business world, including work for a major regional business newspaper and a global law firm.
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