Many of us assume that when we want to open a bank account, it’s a simple matter. After all, we aren’t borrowing anything; we should be able to open a deposit account with minimal fuss. While many financial institutions will let you open a deposit account with the identification information required by law, and by answering a few questions, others will add another step: Looking at your ChexSystems report.

What is ChexSystems?

ChexSystems is an organization that helps keep track of poor banking habits. It is a voluntary organization; financial institutions choose whether or not to participate. If your current bank is participating in ChexSystems, it will report items like bounced checks and overdrafts. ChexSystems compiles the information, and each reported incident remains on your record for five years. When you go to open an account at another bank that makes use of ChexSystems, your record will be run. If you have a ChexSystems history showing a negative incident, you might not be allowed to open an account.
It is important to note, though, that ChexSystmes does not report positive information. So, even if you have spent the last 10 years with an impeccable record, one mistake can blacklist you for the next five years. Even a single overdraft can result in your inability to open a bank account at another institution that participates in ChexSystems.

Some banks have their own policies, such as setting a minimum number of ChexSystems incidents so that you aren’t denied for one or two mistakes. Other banks disregard incidents older than three years, even though they may remain on the report for five years. Other banks have individual reporting practices, and won’t report you unless you make a habit of overdrawing your account.

ChexSystems is considered a consumer reporting agency, so you are actually entitled to one free report a year. If you are curious about your ChexSystems report, you can order one free report every 12 months.

Protecting Yourself

Obviously, one of the best ways to make sure that you are protected at all times from ChexSystems reporting is to avoid situations that can result in an overdraft of your account. Keep track of your spending, and make sure that you have an adequate cushion, just in case you make a mistake.

You can also protect yourself by finding out what your financial institution’s policy is regarding ChexSystems. Find out whether the bank reports to ChexSystems, and what the policy is regarding reporting. This way, you will have an idea of what is likely to trigger a negative report. You can also ask about ChexSystems participation before you open a new account. If you don’t want to risk ChexSystems, avoid opening accounts at financial institutions that report to the agency. That way, you will be more likely to avoid the extra scrutiny.

Banks and Profiling

With so much data available about consumer habits, banks are profiling consumers more and more. ChexSystems is just one tool that banks use to determine what sort of financial risk you might be. Some banks even pull your credit when you apply for a deposit account. Consider your financial habits, and realize that someone is probably watching your data for clues about what you’ll do next.