What is ChexSystems?
ChexSystems is a Credit Reporting Agency (or "credit bureau") as defined by the FCRA.
Instead of collecting and sharing data about how you handle credit accounts (like the three major credit bureaus), ChexSystems collects and shares data regarding how you handle your bank accounts.
Banks check your record at ChexSystems to determine your record of "NSF" (non-sufficient funds) activities that have been reported. Everything that is reported to ChexSystems is negative. In contrast with a credit account which normally reports positive history, there are no timely payments or other positive data to be reported to ChexSystems in relation to a bank account.
Records of inquiries are kept on ChexSystems files, as are records of checks ordered. They are not listed on a report, however, for anyone except the consumer whose file they belong to.
Returned checks are reported to a separate company by retailers, and obtained from that company by ChexSystems. This information will also be on your ChexSystems report.
Since the only information that gets reported to ChexSystems is negative information, if you have been reported to ChexSystems then you will have negative marks on your report, and could have trouble getting a checking account at any bank that uses ChexSystems.
"Negative-only reporting" also means that if you have negative items on your ChexSystems report, the only way you can improve things is by disputing the items to get them removed, or waiting for them to expire on their own.
This puts some consumers in a difficult situation of having to attempt a cleanup of their ChexSystems file while trying to figure out how to function without the use of their local bank.
If you’re in that situation, there are still options such as non-ChexSystem banks, second chance checking accounts, or some newer alternatives.
According to bankrate.com, 80% of commercial banks and credit unions use ChexSystems.
While "reported" negative information on your ChexSystems file stays on your report for 5 years, many banks have adopted policies that do not take the full history into consideration except under certain circumstances. Instances of fraud or where debts have not been repaid meet stricter approval requirements, where older entries won’t necessarily rule the person out for checking account approval.
This means that even if you are unable to find a non-ChexSystems bank, being reported to ChexSystems probably isn’t the end of the world. Many people will find that if they can get by with alternatives for a while, they can wait it out with little impact on their lives.
And there is always the option to dispute items on your ChexSystems report.
If you do have problems with your ChexSystems file due to either financial trouble or identity theft, the biggest thing to remember is that ChexSystems is a credit bureau and they are subject to the FCRA. You can use this fact to dispute items on your ChexSystems report, and clean up your ChexSystems file.