What Is Chex Systems and How Can I Use It to Protect My Identity?
What Is Chex Systems and How Can I Use It to Protect My Identity?
One of the easiest ways for criminals to get access to a large amount of funds to use quickly is for them to steal your identity and open up lines of credit in your name. Alarmingly, the most recent data suggests that only 10-20% of people have a security freeze or fraud alert placed on their credit, meaning that 80-90% are extremely vulnerable to this type of identity theft.
Like changing passwords regularly (and not reusing the same password) these types of preventative measures are things we often know we should be doing, but put off until after we encounter real harm from identity thieves.
So, if you’re reading this but haven’t done that yet, please take this as a sign to go put some protection on your credit.
However, for those folks who have already done what they can to make sure their credit is protected, you may be wondering, is a fraud alert or security freeze enough to stop someone from completely taking advantage of my identity? And the answer is, of course, no.
While a credit freeze or security alert is a good first step, there’s more that you can do to ensure that someone with your identifying information can’t approach identity theft from another disturbing angle – opening a bank account in your name.
That’s a great question. On the surface, it seems strange that someone who was stealing your identity would try to open a bank account that was legally registered to you to put money into. But there are lots of ways people can take advantage of opening an account in your name:
- Check Writing Schemes – They can set it up with the intent to overdraw it by writing bad checks, only to be on their way before the check bounces.
- Account Transfer Fraud – They can set it up with the intention of trying to transfer money out of your legitimate accounts directly into this account that they’ve set up in your name, an activity known as account transfer fraud.
- Laundering Money – They may be using it to launder or clean up money gained from illegal activities.
- Stealing (More of) Your Identity – A bank account can also just be used to try and legitimize the identity they’re trying to steal from you.
In cases of account transfer fraud, the potential for direct monetary harm is high, since thieves are attempting to directly transfer funds from your existing bank accounts into this new bank account they’ve created.
In addition to that direct financial risk, in the same way an identity thief can devastate your credit history, they can also devastate your banking history, making it all but certain that you won’t be able to open new bank accounts in your name with the track record of bad banking history they’ve created for you.
Most banks today use a company called Chex Systems that tracks your banking history (including account opening inquiries and applications, overdrafts, bounced checks, involuntarily closed accounts, and unpaid fees or balances) and provides it to banks when they are reviewing your application to open an account. If they see something they don’t like – like a history of unpaid fees or overdrafts, or that you’ve opened accounts at 6 other banks this year, they may deny your application for an account at their bank.
As a result, if an identity thief opens up an account in your name in North Dakota and behaves badly, when you go to open an account with your local bank in Ohio, they’ll be able to see all of what went on in that North Dakota account when they pull your ChexSystems record – and they probably won’t like what they see.
If you’re curious what your banking history looks like, you can create an account with Chex Systems and run two types of reports.
One is a quick “score” report, which basically provides you with your banking score.
The other is a more comprehensive Consumer Disclosure Report (you can think of this like your longer credit report that you can request from each of the Credit Bureaus once per year). Like the longer credit reports, you are allowed to request a free version of the long-form report once every 12 months (and one additional time per 12-month period if you are denied account opening at a bank and you’re trying to figure out why).
Not necessarily. Some banks are more Chex Systems sensitive than others, depending on their size, and how much risk they can take on with new account holders. Additionally, banks are granted access to the reasons behind the score, so if the reasons behind your score involve a lot of unpaid fees, bounced checks, or overdrafts, that’s far more likely to get you an account denial than a low score that’s the result of having recent inquiries for account opening at another bank.
Yes, Chex Systems offers both security freeze and security alert options (for free) that can be added to your accounts.
A Chex Systems security freeze is like a credit freeze. If it is in place, no one, not even you, can open a bank account in your name. To be able to open a bank account in your name, you’ll need to remove or temporarily “thaw” the freeze (ideally at least 48 hours before you attempt to open a new account). And you should be advised that at some banks, especially those who are considered very Chex Systems sensitive, if you are denied due to a freeze, you may not be allowed to reapply for an account with that bank within a certain period of time.
A Chex Systems security alert is similar to a fraud alert. You can only put it into place for a year (which means you need to reset it each year) and it doesn’t prevent someone from opening an account in your name, it simply indicates to the bank that they need to take extra measures to verify your identity BEFORE opening an account in your name, like making a phone call to the number you have on file with Chex Systems to confirm that it is actually you who is trying to open the account. This provides an added layer of security but doesn’t fully prevent account opening (and is not required to be lifted before opening an account).
Having seen the terrible fallout from some extreme identity theft cases, it’s fair to say that it’s alarming to us that the number of people utilizing even a basic credit freeze or fraud alert on their credit is only 10-20%.
We’d like to see everyone, at the bare minimum, using the free fraud alert systems that they have access to, and the same is true of a Chex Systems alert.
If it’s helpful to hear it, the very first thing you’ll be told to do once you suspect that your identity has been stolen is to freeze your credit with all three Bureaus, and to freeze your Chex Systems profile. So why wait until disaster strikes? If you simply do not want the hassle of having to unfreeze each time you need access to credit or want to open a new account, at least consider putting a fraud alert on all of them, and a yearly calendar reminder to reset it.
If you’ve read this far, but haven’t done that yet, please take this as a sign to go put some protection on your credit AND bank accounts. It’s your money on the line!