Consumers are often preoccupied with a pristine credit report when there is also a consumer “banking” report to worry about. More than 80 percent of all U.S. banks and credit unions will pull this banking report when you open a savings or checking account. Having negative marks on the report could mean your bank-account application gets denied.
The banking report is provided from a consumer-reporting agency called ChexSystems, which is not a credit bureau. While ChexSystems does not keep a running record of your bank accounts and balances, it does maintain records of violations and mishandled accounts that are reported by financial institutions.
Repeated overdrafts or suspected check fraud, for instance, are infractions that are likely to be reported in your ChexSystems report. Other actions that may end up in the report include unpaid balances, ATM abuse, and excessive withdrawals in savings accounts.
It is important to note that banks do not necessarily report your accounts to ChexSystems immediately after they occur. Banks will report your account if it is not addressed in a timely manner—determined by the bank. If you overdraft your account but bring the account back to a balance of $0 or more within the next few days, it is unlikely that the bank will report it to ChexSystems.
Other information that is logged in your ChexSystems report includes who has pulled your report and when, any unpaid written checks, check-ordering history, and bare-bones details on other public records such as property ownership, liens, bankruptcies, and evictions.
Like with credit reports, banks will use their own criteria to review your ChexSystems report during the account-opening process. One negative record may be enough to get your application rejected.
“Each report submitted to ChexSystems remains on our files for five years, unless the source of the information requests its removal or ChexSystems becomes obligated to remove it under applicable law,” according to ChexSystems’s website.
If you do have any negative records, it would be ideal if you fixed the issue and asked the bank to remove the record, rather than update the report to say the situation is fixed.
Under the Fair Credit Reporting Act, all consumers are entitled to one free annual ChexSystems report. In the same way that you should be checking your free credit report every year, you should also remind yourself to pull your ChexSystems report annually. The information on your ChexSystems report may not change much as information on your credit reports, but it also provides a way to catch identity fraud.
If you happen to have any infractions recorded on your ChexSystems report and are having difficulty opening a bank account, seek out banks that offer “second-chance” checking accounts, which are accounts designed for those with tarnished banking histories. However, these accounts tend to have higher fees and account limitations, such as the number of checks you are allowed to write.
You can also try to obtain a bank account with a community bank or credit union, because they are usually more lenient when it comes to a poor ChexSystems report.
Simon Zhen is a columnist and staff writer for MyBankTracker.com. His columns cover all aspects of personal finance—with a focus on banking, saving, and financial technology.