ChexSystem is a consumer-reporting agency that collects information about suspicious activities with your checking accounts. For example, account misuse or fraudulent activity within the last five years. Before opening a new checking account, your ChexSystem report will be reviewed by banks and credit unions to determine whether to approve your request.
Although how ChexSystem works sounds similar with the major national consumer credit bureaus, which record your credit history, ChexSystem records your checking account history. According to The Fair Credit Reporting Act, you can request one free copy of ChexSystem record online each year. You also have the right to use this record to argue in a decision that denies your application for a new account.
In a report of ChexSystem, you may find these information:
- Identifying information. This includes your name, Social Security number, and your current and past address.
- Negative records, including overdrafts or accounts closed involuntarily. Sometimes the bank might close an account when this account has been suspected to commit fraud or the account holder keeps writing bad checks.
- Suspected fraudulent activity. This might include debit card or ATM abuse such as depositing empty envelopes at an ATM.
- Account inquiries or applications for other bank checking accounts. This usually refers to excessive application of new accounts. If you apply for multiple accounts in a short period of time, you might receive a red flag for potentially fraudulent activity.
As mentioned, ChexSystem generally store your negative records for five years. And when you apply for a new checking account, financial institution would inspect your records in ChexSystem. However, different financial institutions have different rules about how long you have to wait after a negative incident before the approval of a new bank account. Thus, it’s always recommendable to avoid negative records in ChexSystem.