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ChexSystems: The 'Credit Bureau' of Checking Accounts


I can’t imagine life without a checking account. But millions of Americans don’t use direct deposit, write checks, or use a debit card. Some because they’d prefer not to. And some because they can’t. For those that can’t have a checking account, chances are they bounced one too many checks and are flagged in ChexSystems—the “credit bureau” for checking accounts. What is ChexSystems? And why does it matter?

ChexSystems is a national database of bank customers that chronically overdraw their checking accounts (either via bounced checks or other overdrafts).

Like a credit bureau, ChexSystems uses your social security number to track:

  • How you manage your checking accounts
  • How frequently you overdraw your accounts
  • Whether you owe money to any banks for overdrafts/bad checks

Whenever you open a checking account with a new bank, most banks check with the agency to make sure you haven’t abused accounts in the past. (Some non ChexSystems banks exist; see a list at the end of this post).

If, like most Americans, you rarely overdraw your account and always pay any overdrafts quickly, you’ll never have to worry about ChexSystems. If not, watch out: You may be in the system and you may not be able to open a new checking account.

This happened to a friend of mine. When he was younger and less wise, he overdrew not one but two checking accounts and failed to repay the banks several hundred dollars a piece. Soon, his banks closed his accounts and he couldn’t open a new one.

Had he repaid his overdrafts quickly, his banks probably would’ve let him keep his accounts open. Now, getting a new checking account won’t be easy; he must make due with cash and a savings account. (ChexSystems doesn’t typically impact your ability to open savings accounts).

What to Do If You’re In ChexSystems

Just because you have a negative report in ChexSystems doesn’t mean you’ll never be able to get a checking account again. There are steps you can take:

  • First, order your individual ChexSystems report. You are permitted one free report per year or anytime you are denied a bank account.
  • Next, dispute any inaccurate information on the report.
  • Finally, repay any outstanding checks!

Information can stay on your ChexSystems report for between four and five years, but banks will be more willing to consider you for a checking account if you have fully repaid any outstanding checks. (Getting a checking account will likely be impossible if you still owe).

Finally, talk to a real person. You may have luck opening a bank account if you apply to a local bank or credit union where you can speak to a sympathetic teller or manager and demonstrate that your past financial transgressions are behind you.

Finally, you may be able to find non ChexSystems banks. These banks that do not use ChexSystems are few and far between, but some sites maintain lists (like those here and here). Again, it’s your obligation to repay your old debts and it’s the smartest financial move for a lot of reasons, but the alternatives to a checking account (such as check cashing/bill-paying companies and prepaid debit cards) are expensive and inconvenient.

Have you had a checking account closed or had difficulty opening a checking account because of a report on ChexSystems? What happened?

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. I’ve owed my credit union $80 since late last year, and they only bothered to tell me 2 months ago, and threatened to report me to ChexSystems. Taking care of it in a week with my next paycheck. Thanks for the link, though, curious to see if they’ve reported me yet.

  2. Great post and great summary of how to deal with ChexSystems issues. We get dozens of emails each day from people who are trying to figure out how to deal with their ChexSystems problems, and we love to see articles like yours that give people a good summary of the process.