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What is ChexSystems?

Similar to a FICO credit score, this credit rating reflects your history as a banking customer. Here's how it works


Most people know that their FICO score affects whether they will get approved for credit cards and loans. But there’s another number that influences banks’ and lenders’ decisions about which customers to work with as well, and that is the ChexSystems score.

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Most people know that their FICO score affects whether they will get approved for credit cards and loans.

But there’s another number that influences banks’ and lenders’ decisions about which customers to work with as well, and that is the ChexSystems score.

What Is ChexSystems?

ChexSystems is similar to the FICO system, except that it’s based on banking activity rather than credit. Where your FICO score is determined by on-time payments and credit utilization, among other factors, your ChexSystems score reflects your history as a banking customer.

Factors that negatively impact your ChexSystems profile include overdrawing your checking account, bouncing checks and leaving negative balances unpaid on the account. Opening too many new accounts at once can also bring down your score.

A ChexSystems report is designed to show whether you’re a good or bad banking partner, said Michael Broughton, co-founder and CEO of Perch, a startup that aims to help people build credit through recurring payments.

Banks and lenders want to know that you’re a consistent, reliable borrower or account holder, Broughton said, which is why ChexSystems analyzes a range of data points – even ones you wouldn’t expect to count against you. A history of low checking account balances, for instance, can be a warning sign even if you don’t overdraw the account.

“Having a low balance consistently makes you a bad indicator for new banking accounts or new product offerings,” Broughton said.

A record of low funds makes it unlikely that you’ll be able to fund a new account with more money or that you’ll have an increase in activity, he explained.

But a history of writing checks without enough funds to cover them is a particularly significant problem, according to Howard Dvorkin, a CPA and chairman of Debt.com.

“Bouncing checks, not making good on those checks – that’s really the knife in the back when it comes to ChexSystems,” Dvorkin said.

Does ChexSystems affect creditworthiness?

When credit card companies and other lenders run your application for a credit card or loan, they pull your FICO score and credit report. They look for any delinquencies on your accounts and other signs that you’ve had issues managing credit in the past.

But because ChexSystems is a credit reporting agency, the information on that report can influence credit applications as well. Money problems such as overdrafts and bounced checks can make you look risky as a prospective borrower (and these issues may be reflected in your credit score as well).

Not all lenders use ChexSystems, said Nishank Khanna, CFO at Clarify Capital. But many use it to supplement your credit score and credit report when making account decisions.

As challenging as it is to be denied credit, your ChexSystems profile affects something even more fundamental, which is your ability to open new checking and savings accounts.

“The ChexSystems and FICO systems are kind of like a game of snakes and ladders. Every time you hit a snake and fall back down, more snakes occur in the game, making it so that eventually there will only be snakes around,” Broughton said.

“Having your bank account in default or having too many accounts in the negative, you start to send bad indicators, and bad indicators limit your access,” he added. “When your access is limited, you get to the point where you can only have one bank account and you’re kind of stuck. This actually happens to a lot of people who are underbanked in America.”

See related: How a cashless society is leaving some behind

How to improve your ChexSystems score

If you need to open a new account right away but have a spotty banking history, you might try a small, local bank or credit union rather than a branch of a large corporate bank, Dvorkin said.

“They may have more leeway than an impersonal, large bank,” Dvorkin said. “My experience is the bigger banks have more tedious, strenuous standards when opening up a checking account. There are boxes that have to be checked, and if the person doesn’t check the box, you don’t get the checking account.”

A local bank or credit union may have more flexibility in deciding whom to offer checking accounts, and they may be willing to work with you even if your ChexSystems score is not strong.

“They might be a little more lenient than a multinational,” Dvorkin said.

However, he added, even small institutions can be penalized if they have a large percentage of high-risk customers, so there are no guarantees that they’ll approve an account. But it is one option to try if you want to open an account and have been denied elsewhere.

Beyond opening a new account, there are steps you can take to improve your ChexSystems score, which are similar to what you’d do to boost your credit score.

  • First, bring any overdrawn accounts current by getting them at least to $0. Overdrawn accounts not only hurt your ChexSystems profile, but they can also incur fees that make it even more difficult to get caught up. If you’re struggling to get paid up, call your bank and ask if it can help. The bank may be able to waive at least a portion of the late fees to make the amount you owe more manageable.
  • Dvorkin noted that fraudulent activity can also hurt your ChexSystems profile. If you see anything that is fraudulent or incorrect on your report, you can file a dispute through ChexSystems’ website.
  • Once you’ve recovered some accounts or paid off balances, Broughton recommended contacting ChexSystems directly to correct any outdated information. Making sure your ChexSystems report is accurate can help you improve your score immediately, he said. ChexSystems typically keeps accounts on your record for five years, but you can request to have them removed sooner.

See related: UltraFICO focuses on how much money you have in the bank

Monitor your credit

To avoid ChexSystems or FICO problems in the future, you can also take a proactive approach to your finances. Broughton said budgeting and taking control of your income and spending can help you avoid overdrafts and other missteps that will affect your ability to qualify for new accounts.

Khanna said if you’re monitoring your credit profile and score regularly, there’s no need to stress about your ChexSystems score.

“Before panicking, it’s important to note that these scores hold much less stock in your financial health than a credit score,” he said. “Most people don’t even know these scores exist until a bank declines to open an account for a risky prospect.”

Bottom line

Reviewing your ChexSystems report, particularly if you’d had a history of defaults or overdrafts, can help you gain control over your finances and make yourself a lower-risk account holder and borrower. But the best thing you can do for yourself is to practice smart money management and use a careful budget to avoid overspending day to day.

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