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When deciding to start a small business, most entrepreneurs find themselves quickly overwhelmed by the never-ending list of logistical to-dos.
It’s true that opening a business checking account should be as easy as filling out a simple online form. But if you’re reading this, chances are you’re one of the unlucky few for whom that wasn’t the case.
If a problem with your ChexSystems report is holding up your business ownership to-do list, don’t panic! You’re in the right place. Once you understand how the ChexSystems database is impacting your small business banking options, you can take steps to clear your name and even to open a business checking account online despite your ChexSystems challenges.
Until experiencing either a forced checking account closure or a denied application for a new personal or business checking account, most of us live our lives totally unaware that ChexSystems exists. Even so, you likely are aware of another financial reporting system that operates in much the same way: your personal credit report.
Just as credit reporting agencies like Experian, Equifax, and TransUnion gather information from creditors to analyze your creditworthiness as a borrower, ChexSystems performs a similar monitoring function for the use of checking and savings accounts.
Simply put, ChexSystems is a nationwide consumer reporting agency that tracks the misuse of checking and savings accounts within US banks.
If you’ve ever opened a bank account of any kind inside the US, chances are that you have a record within the ChexSystems database. That said, ChexSystems only lists negative information about your banking history when reporting to financial institutions. This may include bounced checks, repeated instances of insufficient funds, failure to pay banking fees, or suspected fraudulent activity.
According to the National Consumer Law Center, around 80% of banks consider reports from ChexSystems when evaluating applications for new bank accounts. Many of the remaining institutions look to similar consumer reporting agencies such as TeleCheck or Early Warning Systems (EWS) for similar information.
The relationship between ChexSystems and individual banking institutions is a mutual one. Banks report relevant consumer banking activity to the agency on an automated basis—and in return, ChexSystems grants access to their reporting database so that these same banks can evaluate new account applications.
Though a wide variety of so-called “account misuse” can lead to a flag on your ChexSystems report, here are some of the most common entries that may limit your future access to a checking or savings account:
When ChexSystems receives notification of these or similar account activities, the information will be reflected on your ChexSystems report for up to five years.
In addition to listing individual infractions on your ChexSystems report, the agency also calculates a “Consumer Score” on the basis of the reported information. Falling within a range of 100 to 899, this score indicates to banks and credit unions the relative risk of approving a checking account for each consumer.
As with your credit score, you want your consumer score to be as high as possible (ideally above 750) to indicate responsible use of your banking accounts.
You can request access to both your ChexSystems Consumer Score and your full ChexSystems report through the agency’s online request form.
As you learned above, ChexSystems is a consumer reporting agency—which may leave you wondering, why would your personal ChexSystems report have any impact at all on your business checking account applications? After all, isn’t your business as an entity the one applying for the new account?
Well, yes. And no. The answer here depends on your business’s legal ownership structure—and in turn on your Federal Tax ID.
Confused? We’ll explain:
ChexSystems relies on your social security number for its monitoring and reporting efforts. If your business operates as a sole proprietorship or a single-member LLC, chances are that the Federal Tax ID number for your business is the same as your social security number. In this case, banks can use this Tax ID—and in turn your ChexSystems report—when considering your business checking account application.
However, if your business operates as a partnership or corporation, you likely filed for a separate Federal Tax ID number, known as an Employer Identification Number (EIN). Because this number isn’t directly tied to your SSN, it likely won’t come up in ChexSystems records when a bank searches the database for your application.
On the other hand, since most banks carry terms and conditions that hold business owners personally liable for their business’s finances, you may be asked to supply your SSN in addition to the Federal Tax ID on your checking account application.
As you can see, the impact of ChexSystems on business banking can be complicated, and small business owners tend to have mixed experiences. For the most part, though, your best bet is to assume that your ChexSystems report will be reviewed as part of any new account application.
Now that you have a better understanding of how ChexSystems work and its impact on your business banking choices, what should you do to overcome this hurdle and open a business checking account with no ChexSystems problems?
Essentially, you have two options—either get your ChexSystems record cleared, or work with a bank that will overlook your ChexSystems report.
If you’re in a hurry to open a business checking account, the second of these options will be your fastest way to go. That said, most business owners would benefit from following a combination of these two approaches.
Let’s take a look at these options in detail to help you open your business checking account online—no ChexSystems drama required.
No business owner wants to be held back by the looming impact of blemishes on your financial record. For this reason, your first and best course of action when faced with “the ChexSystems blacklist” should be addressing the issue head-on.
Before moving straight to a workaround for your ChexSystems challenges, follow these steps to uncover the cause of your ChexSystems challenges and clear your name from the database.
Request Your Full ChexSystems Report
You may have only learned about your ChexSystems record when you were turned down for a business checking account application—and chances are, the bank in question likely didn’t share details of what they found on your report.
To understand precisely what the bank is seeing, you’ll need to review your full ChexSystems report for yourself. Similar to a personal credit report, your ChexSystems report will show detailed records of past closed accounts, outstanding debts, and bounced checks that may be impacting your current access to open a business checking account online.
You’re legally entitled to obtain a free copy of your report—known as your Consumer Disclosure—once every 12 months. Request your report online through the ChexSystems website, and your report will be sent to you via US mail within about five business days.
Submit a Written Dispute for Factual Errors
As with any reporting agency, ChexSystems does occasionally make mistakes regarding users’ banking activity. Mixing up names or social security numbers, misreporting from outside banks, or out-of-date information can potentially cause your account to be flagged by ChexSystems even if you’ve done nothing wrong.
If you review your ChexSystems report and find information that you believe to be inaccurate, you can submit a dispute on the ChexSystems website to have the error corrected. When filing your dispute, be sure to include documentation proving the error—such as past payment records or bank statements—and keep a copy of the submitted dispute for your records.
Once you’ve submitted the claim, ChexSystems and your financial institution are required by federal law to research the dispute and correct any confirmed errors within 30 days.
Pay Off Outstanding Debts
While inaccuracies on your ChexSystems report are possible, a more likely scenario may be that you have overdrafted accounts, unpaid fees, or outstanding debts that have resulted in a legitimate mark against your report. If this is the case, don’t panic or wallow in past mistakes. These things happen, and all you can do is move forward in a positive direction.
Pay off outstanding debts as soon as possible—particularly those that have been sent to a collections agency or are the result of unpaid bank account fees.
If your budget is tight, don’t be afraid to reach out to creditors directly and work to negotiate your claim. In many cases, creditors may agree to accept less than the initially owed amount in order to close the outstanding debt.
Ask Creditors to Update Report Entries
When you’ve addressed the offending entries on your ChexSystems report, most creditors and financial institutions will automatically reference these updates on their next regularly scheduled report to ChexSystems. However, the automated process can take time to be reflected in your ChexSystems report.
To speed up this process, take the time to proactively ask creditors to update your file on the ChexSystems database at the time your payment is made. You can also ask for a written record that your account has been reconciled and submit that documentation directly to ChexSystems through the dispute submission portal. These steps can fast-track the process of clearing your ChexSystems report.
Wait for Your ChexSystems Record to Clear
Once you’ve taken these proactive measures, there’s nothing left to do but wait for your ChexSystems record to be cleared. This process can take as little as a few months or multiple years, depending on the original offense.
Fortunately, although federal regulations permit ChexSystems to maintain records within their database for up to seven years, the agency typically keeps records only for up to five years after the closing of a given bank account.
For some entrepreneurs, however, the “wait and see” approach to clearing your name on the ChexSystems database can result in missed opportunities for your business. If you’re not content to wait out the process, you may be better off working around the ChexSystems issue with our next option below.
There’s no denying that a negative ChexSystems report will impact your access to most online business checking account options—particularly if that report includes evidence of suspected fraud. That said, there are a few banks that offer online business checking accounts with no ChexSystems review, or that give only minor consideration to what they may find on your report.
If ChexSystems has held you back from obtaining an online business checking account, your best bet is going to be the following:
BBVA Compass Bank ClearConnect for Business
Known for its so-called “second chance” checking account options, BBVA Compass Bank is known to overlook ChexSystems reports in applications for the ClearConnect for Business account. BBVA’s business accounts require no minimum monthly balance and don’t carry a monthly fee, making it an excellent option for those just getting started in business.
Note that only sole proprietorship businesses can apply online for a ClearConnect account, while other business entities will have to visit a branch location to apply. Once your account is in place, however, BBVA Compass offers a full suite of online banking services.
Since this offer is only available online for sole proprietors, your best bet might be to look at accounts that you have to apply for in person or on the phone that offer “second chance” checking accounts. Woodforest National Bank is a great example.
Keep in mind that a bank’s application review processes can change at any time, and ChexSystems may become a factor for these banks in the future. That said, if you need a starting point to move past your ChexSystems challenges, these may be a great place to start.
Receiving news of a denied business checking account application due to a ChexSystems problem is undoubtedly frustrating, and it may even slow down the process of getting your small business’s financial systems up and running—but it doesn’t have to stop your progress completely.
For the most part, only sole proprietors can open a business bank account using solely an online application. However, the good news is that, in some cases, you can open a business checking account with no ChexSystems verification, or even work with a bank willing to overlook flaws on your report. And once the account is opened, that account can be managed almost entirely online.
In the long run, your goal should be to learn from past mistakes and improve financial management skills so that you never again have to worry about ChexSystems. Until then, it will simply take some creativity and additional research to access the small business banking options that your new business needs.