What is ChexSystems scoring?
Banks have several different tests that are run when potential customers apply for a checking account or loan. Many people know about their credit score, which affects your eligibility for a loan, but not many people know about ChexSystems. This article is intended to clarify what ChexSystems is, and how its scoring system works.
What is ChexSystems?
Unlike your credit score, which is used when applying for a loan, your ChexSystems score is used by banks when you apply to open up a new checking account. It’s based on your checking account history, and it keeps track of any accounts that have been closed for “high risk” reasons.
These are usually reasons associated with fraud, violation of a bank’s terms and conditions, failure to keep up with overdraft and late fee payments, and other reasons. If any of your accounts have been closed for these reasons, you will be logged on ChexSystems. Your information stays on file for 5 years after the account is closed.
What is the scoring system?
ChexSystems scoring works similarly to credit scoring, although the two things aren’t related. It’s entirely possible for you to have a good credit score and a low ChexSystems score, or vice versa. Each time you have a checking account closed for one of the reasons on file, your score will drop.
ChexSystems scoring works on a scale of 100 to 899, with higher numbers being better. If a bank runs a ChexSystems check on your accounts and it comes back with a low score, it’s likely they will reject your application. A customer with a low score is seen as high risk, especially if accounts were closed because of fraudulent activity. If you’ve had applications denied in the past, this could very well be the reason.
What to do if you have a low score
If you have a low Chexsystems score, it’s not the end of the world. Around 90% of banks use this system when checking new applications, but this also means there are around 10% of banks in the USA that don’t use ChexSystems. If you believe your ChexSystems score is holding you back it will be worth researching these banks and applying for a checking account with them.
Unlike with your credit score, which can slowly be improved over a number of years, there’s little you can do about your ChexSystems score. The information stays on file for 5 years, and the only way to remove the information is to dispute it. This can be expensive and time consuming, and doesn’t always work.
ChexSystems scoring is just another way for banks to check your history, and assess the risk you might present to their business. You can apply for your ChexSystems report, and if you
don’t believe the information is accurate you can dispute it. However, if your score is low it might be better to focus your efforts on not making the score worse and waiting until the information is cleared off your history.