As a consumer you’re probably aware of this little thing called a credit report. Okay, it’s definitely not “little” — in fact, the credit score derived from your credit report and history can determine your ability to obtain auto loans, mortgages or if you can apply for a credit card, and the limits, too. It’s a big deal indeed but did you know there’s actually another credit report that not many people are aware of?
It’s technically not an actual credit report but acts very similarly to one. When you apply for a bank account, for example, banks don’t pull up your credit report or look at your credit score; instead, they look at something called a ChexSystems report. Eighty percent of all commercial banks and credit unions in the United States use ChexSystems as a step in the consumer checking or savings account application process. (Bankrate.com)
Why do financial institutions do this? Essentially, banks want to make sure they are not taking on risky clients — they want to weed out the bad apples that can cost them money. A consumer’s ChexSystems report typically contains banking irregularities such as check overdrafts, unsatisfied balances, depositing fraudulent checks, or suspicious account handling that other banks have reported in the past five years. (Wikipedia)
So you might think to yourself, “What’s wrong with a business trying to protect themselves?” Unfortunately, credit reporting agency ChexSystems reports do not provide a full picture or story of customers banking history. In fact, they only report negative information and no scoring system. So if you attempt to apply for a bank account and there may be only one negative item reported on your ChexSystems report, you will most likely be turned down. There have been criticisms about this reporting method and many have deemed it as an unfair reporting practice.
What can you do?
According to Bankrate.com you have recourse:
“You have the same right to dispute information on your ChexSystems report that you do with a credit report. That means that the firm has to follow the dispute provisions of the Fair Credit Reporting Act, or FCRA. If you are turned down for a checking account, ChexSystems will provide you with a free copy of your consumer report within 60 days of that action if the financial institution pulled your ChexSystems report as part of its decision-making process.”