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What Chexsystems Is, How It Works and How It Can Hurt You

Chexsystems, formally known as "Deluxe Chexsystems," is a consumer reporting agency geared toward reducing banks' financial losses. According to a report from the U.S. Government Accountability Office, The Chexsystems database contains the names of approximately 11 million consumers. If your name is on that list, it will be there for a total of five years before being removed.

When you go to apply for a new checking or savings account, your bank will probably ask you to fill out a formal application, request your permission to conduct a credit check, and run your name and Social Security number through the Chexsystems database. If the database returns a match for your information that usually means game over for you. You won't be getting that bank account.

How Your Name Gets Into Chexsystems

Chexsystems is essentially a "red-flag" database. While the vast majority of the names listed are the names of individuals who failed to pay debts associated with a checking or savings account, some of the individuals in the database intentionally committed bank fraud, such as kiting checks or writing checks on an account that had already been closed.

When a bank is forced to close a consumer's account for any of these reasons, it will close the account and then forward the individual's name, personal information and data pertaining to the debt or fraud to Chexsystems where it will sit quietly until that person tries to open up a new bank account. Like getting a bank account with bad credit, getting a bank account while in Chexsystems can prove to be quite a hassle.

Why Banks Don't Like to Give New Accounts to People in Chexsystems

If your name is in Chexsystems, there's a valid reason for it. Even if the reason is unjust or unfair, your bank probably felt it had cause to put you there. Unfortunately, this makes you a high risk for any subsequent bank. The rationale behind this is simple : Whatever you did to land yourself in Chexsystems the first time you're likely to do again.

Of course, this line of thinking groups the victims of messy divorces right up there with criminals committing ATM fraud. Unless you can put an identity theft victim's report in the bank manager's hand, however, don't expect your local bank branch to be very forgiving. They may believe and even sympathize with you, but they're forced to follow bank policy.

Exceptions to the Rule – Getting a Bank Account

As the economy worsens, more and more individuals find themselves with debts they can't pay. If you're struggling to make your mortgage payment, the last thing on your mind is an overdraft fee that you owe the bank. The double whammy, of course, is that your bank can charge you upwards of $30 if you overdraw your account by one red cent. Because the use of debit cards is common, purcahses often go through in batches – resulting in multiple overdraft fees at once.

Instead of having a small fit and then begrudgingly paying excessive bank fees, however, many individuals are ignoring them in favor of paying for more pressing necessities. The end result? More names going into Chexsystems. Fortunately, you can get approved for a checking account while in Chexsystems.

Some banks, such as Wells Fargo and Suntrust, now provide special checking accounts for those who, for whatever reason, ended up in Chexsystems. These accounts often carry considerable limitations, but provide debtors with a method of managing their money other than stuffing it under the mattress. The people benefit from having access to a bank account and the banks benefit by recapturing a lost revenue source. Keep in mind, however, that few banks, if any, will allow you to open up a new account if your Chexsystems report reflects that you still owe an outstanding debt to another bank. Granted, paying off the debt won't remove you from the database, but it will facilitae your ability to qualify for a new account.