How Does Chexsystems Affect Credit Ratings?
What is ChexSystems?
ChexSystems is a service used by merchants and banks to check the creditworthiness of potential customers. Using a customer’s personal information–driver’s license and Social Security number–ChexSystems will then advise the bank whether to open or refuse the new checking or savings account.
Information about ChexSystems is hard to come by. There is no main website, and the site of the corporate parent, Deluxe Corporation, doesn’t offer specific information under that particular name.
As low-profile as the company is, it still services 80 percent of the banks and credit unions in the U.S., according to Bankrate.com.
What Is the Rejection Criteria?
ChexSystems will refuse an account for several reasons. There may be outstanding funds from a past transaction that haven’t cleared, or funds paid by a financial institution to cover a checking overdraft.
Second, names showing a record of overdrafts will turn up a red flag. Abusive use of checking and debit cards also warrant notice, as will charges of fraud or presentation of false information.
Bad account information stays on file with ChexSystems for five full years. Even if a bounced check is paid off quickly, ChexSystems still carries that negative credit information unless the consumer goes through the procedures to remove it.
What about Credit Ratings?
ChexSystems doesn’t affect your credit rating, since it doesn’t actually extend credit and is not a lender.
Having a bad account on file with ChexSystems won’t keep you from buying a car, house or other item. What it can do is make financing more difficult. According to Credit Info Center, banks have also performed “sweeps” of customer accounts, closing ones with negative files. It pays to get a copy of your personal ChexSystems report.
Cleaning Up Your ChexSystems File
Some websites offer methods of obtaining a ChexSystems report. Many of these sites will also help with clearing negative reports or finding banks that don’t use the service. The clearance procedure is similar to that of a credit bureau, and there isn’t any charge for file information.
In selected states, a program called Get Checking allows a flagged customer to open a checking account after a 6-hour, one-day course for a nominal fee. Graduates are issued a certificate that they can redeem at a bank that verifies program participation.
The resources below have more information on ChexSystems, with report and clearance information in the second link.