Will this affect your next bank application?Banks are one of the most important foundations of personal finance, as they allow people to save money, plan expenses and set financial goals. While most Americans are familiar with the benefits of banking, few might know that their banking habits are being evaluated by reporting agencies — think of them as the credit bureaus of banking habits. One of the most well-known agencies is ChexSystems, but what exactly is ChexSystems and how does it affect you? Continue reading as we talk about one of the lesser-known aspects of the banking world.

What is ChexSystems?

It’s impossible to talk about bank account applications without talking about ChexSystems, which is a nationwide consumer reporting agency that records information regarding negative consumer banking habits, like account closures, check bounces and similar behaviors. This information is then shared with other banks in the form of a report used to evaluate the risk a specific customer might pose to a given bank.

ChexSystems is often unofficially considered the “credit bureau” of the banking world, as we noted earlier, and for good reason. Not only is it subject to the same rules as credit bureaus – via the Fair Credit Reporting Act – but ChexSystems also offers many of the same features, such as consumer scores which are like credit scores for your banking activity. The analogy isn’t perfect, but it’s close enough that consumers can gain an understanding of what ChexSystems does by viewing it like a credit bureau.

How does ChexSystems affect me?

The reason why many people likely haven’t heard of ChexSystems is that generally the organization only affects those with poor banking histories – banks solely report negative activities and behaviors to ChexSystems. So while nearly every potential banking customer is screened by ChexSystems, only those who have bad histories are most likely to learn about the organization after their bank account application is denied. That said, like with credit reports, ChexSystems reports can also have errors. In fact, it’s entirely possible for someone with a healthy banking history to be flagged for errors that aren’t theirs, which brings us to our next point.

Should you check your ChexSystems report?

While most consumers who stay in their banks’ good graces will likely never hear of or deal with ChexSystems, there is ultimately no guarantee that their ChexSystems’ consumer reports will always be accurate. The company has, in fact, gotten into trouble over claims of mishandling consumer reports in the past. Additionally, some criticize the company for practices that disproportionately impact poor individuals, like recording debts owed from accounts that have already been closed. Often the banks reporting such accounts don’t consider former account holders as active customers and fail to contact them about the issue, and as a result, some consumers can actually be kept in the dark about negative marks affecting their own banking history.

Despite the controversy surrounding ChexSystems, consumers still have some form of recourse through the Fair Credit Reporting Act and through watchdog agencies like the Consumer Financial Protection Bureau. Similar to credit reports, consumers are entitled to one free copy of their ChexSystems report every 12 months, which they can review for inaccuracies. ChexSystems also has a disputing process that allows consumers to mark down any discrepancies on their report and attach them with a dispute letter. Disputes can be submitted online, by fax or by mail, and consumers can also speak with a ChexSystems representative over the phone. Should any complications arise during the disputing process, remember that you can always contact the CFPB or other watchdog organizations about your issues dealing with ChexSystems.

What should you do if you’ve been flagged by ChexSystems?

It’s likely that if you have blemishes in your banking history, you’ve been flagged by ChexSystems and have had at least one bank application rejected. Although such a situation isn’t ideal, you still have options if you find yourself in this position. The first thing to know is that not all banks use ChexSystems the same way. While many actively screen customers with low ChexSystems scores and poor banking histories, some banks have second chance programs which allow customers – even those with poor ChexSystems scores – who meet certain criteria to have their applications approved. Other banks have decided to rely less on ChexSystems; while it’s a factor in their decision-making process, it tends to be weighted less heavily. Other banks might opt to avoid using ChexSystems entirely.

Unfortunately, not all banks are transparent about whether or not they use ChexSystems, so it might be necessary to contact a bank directly about its evaluation practices. It is important to note that even though individuals flagged by ChexSystems still have options, they might not be as favorable as the options granted to those with healthier banking histories. Still, the great thing is that a low ChexSystems score doesn’t necessarily have to prevent you from opening a bank account – just make sure to look at your ChexSystems report at least once a year — remember that you can get it for free — and try to be aware of the options available to you.

Want to know more about banking? Keep reading our online savings blog to learn more about online banks and find out how you can get the most out of your accounts.