Early Warning System technology (or EWS for short) is a widespread system used by lending institutions to look into the lending and spending habits of their clients: people like you and me. It is more generally a system of risk management, which identifies potential threats to the profit margins of lending institutions, by recognizing the bad habits and practices of their customers. Many people who become aware of EWS are also sometime aware of a program called ChexSystems. If you are in the majority of people who have not heard of it, ChexSystems is a technology system similar to that of EWS, except that ChexSystems focuses on deposit accounts instead of credit and loans. Essentially, EWS technology is used for examining behavior related to credit lines and loans, whereas ChexSystems is used for money you have already deposited into the bank.
EWS looks for bad practices or specific habits that consumers may have related to their loans and credit lines (i.e., late payments, overextended balances, and usage of credit margin). ChexSystems, in a similar fashion, looks for patterns of things like odd or somewhat suspicious account behavior, account overdrafts, fraudulent checks, and negative balances.
While these distinctions explain the differences between the two processes, what they do, and what they are designed, or rather intended to do, a certain confusion among consumers still persists. Why do lending institutions use Early Warning System technology even after using ChexSystems technology? This is a fair question, as the practice almost seems redundant. And while it is easy to understand why banks implement these strategies, it is normal to feel slightly confused by the knowledge that your lending institution either knows, or is trying to know, more about you than you originally intended.
It is also normal to wonder why, if a bank uses a method like ChexSystems, they still need to double up on methods to study how you borrow and spend your money. The most important difference to take note of, is that ChexSystems focuses on how you spend money you already have, and EWS focuses on how you spend money that you owe. For this reason, it makes lots of sense why a bank would double up. They need to examine both habits, to accurately assess risk and reward of an individual customer, in all areas of financial behavior.
Fraud prevention and consumer reporting are extremely important aspects of the banking and lending industry. For the average customer who pays their bills on time and has average usage of both their credit and checking accounts, neither of these systems of examination will encounter such consumers. But these systems exist to limit losses for both institutions, and where identity theft and other fraud is involved, the consumer. So, if a few hoops need to be jumped through, to be certain that no one is being taken advantage of, then both ChexSystems and EWS are observed as worthy additions to the application and extension process of participating in the banking system.
Andrea DeLuca is something of a cross between a ninja & a warrior. Having overcame her battles with negative credit. We all have to start somewhere when it comes to restarting your credit. Andrea hopes to help others create a better and more thorough way of rising above the downfalls of having negative credit. Her main site: Rebuild Credit. Check back for great tidbits and to understand your credit better!
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