The two companies that decide whether a bank will take your money

Somebody I'll call Deshawn walked into a bank branch on his lunch break to open a checking account, because his new employer paid by direct deposit and his old account had been closed for two years. He had his license, his Social, a printed offer letter, and a check to deposit. Twenty minutes later he walked out without an account and with a printed sheet that said, in effect, we can't, and here's a phone number to find out why.

He'd never been late on a card. He'd never bounced a check that he knew of. What he had was a $212 overdraft from a college account that the bank had closed and written off, and a record of that at a company called ChexSystems that he'd never heard of, and that record had just told a second bank not to let him in.

This is the third in the eight-file series, and it's about the two companies that watch the front door of the banking system.

What they are

ChexSystems and Early Warning Services are consumer reporting agencies — they're on the Consumer Financial Protection Bureau's list in the check-and-bank-account-screening category — but they don't report credit. They report banking behavior: accounts closed for cause, unpaid overdrafts, suspected fraud, bounced checks, too many accounts opened too fast. Banks query them when you apply for a checking or savings account, and many banks won't open one if the answer comes back with a mark.

They're two companies because banks pick sides. ChexSystems is the older and broader network. Early Warning is owned by a consortium of the largest banks and holds data those banks share among themselves. A clean file at one doesn't mean a clean file at the other, and most people never see either until the day the branch says no.

Why a lender cares

You'd think this was a banking problem, not a credit problem. It becomes a credit problem in three ways.

First, the mortgage underwriter reads your bank statements — two months of them, usually — and a borrower whose deposits are scattered across a prepaid card, a cash app and a credit-union account opened six weeks ago is a borrower with a story to explain. The story is often "no bank would take me," and the underwriter didn't ask for the story; they asked for sixty days of seasoned funds in one place.

Second, an unpaid overdraft can be sold to a collector, and the collector reports to the credit bureaus. The $212 that lives at ChexSystems shows up on Experian as a collection with a different name attached, and now you're disputing the same debt in two systems that don't talk to each other.

Third, and this one is quiet, some lenders' fraud tools check Early Warning directly during application, because the banks that own it are the banks that make mortgages. A flag there isn't a denial. It's a delay, and delays are where rate locks go to die.

What Deshawn did

He called the number on the sheet, which was ChexSystems, and requested his consumer disclosure report. Free; it came by mail in about a week. The overdraft was there, with the old bank's name, the amount, and a closure date. It was accurate. He couldn't dispute it away, and he didn't try.

What he could do was pay it. He called the old bank, paid the $212, and asked for a letter confirming the account was paid and closed. Then he sent that letter to ChexSystems, certified, asking them to update the record to reflect the paid status. Which they did within the thirty days the Fair Credit Reporting Act gives them. A paid item still sits on the file for a while; ChexSystems says most information stays up to five years. But "paid" and "closed for cause, unpaid" are different words to a branch manager, and the next bank opened the account.

Then he requested his file from Early Warning too, because he'd learned the lesson: two doors, two locks. Early Warning had nothing on him. That's the usual result, and it's still worth the stamp to know.

What to do with yours

Request both. The CFPB entries carry the current instructions, and both companies provide the report free. Read them the way you'd read any file: is every account yours, is every closure accurate, is every amount right?

If something is wrong. An account you never had, an overdraft you paid that shows unpaid, a fraud flag from identity theft. Dispute it in writing with the documentation attached. Both companies have the same thirty-day reinvestigation duty as the credit bureaus, and both will send you the result.

If something is right and unpaid, pay it and get the letter. That's not a dispute; it's a correction, and it's the one that moves the fastest.

ChexSystems offers a security freeze, free. Early Warning doesn't list one on its CFPB entry. A frozen ChexSystems file stops a bank from reading it, which also stops you from opening an account until you lift it, so freeze it after you've got the account you need, not before.

The front door

The credit bureaus decide what you can borrow. These two decide whether you can hold money in the first place, and the mortgage process assumes you can. A stalled application that traces back to "no bank would take me" is a story that started years earlier, at a branch on a lunch break, with a $212 overdraft and a sheet of paper with a phone number on it.

Next in the series: NCTUE, the file your cable company keeps on you, and why a collection that lives there arrives at the credit bureaus with the wrong name.