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You can be denied a checking account for a number of reasons, such as negative marks in your banking history, suspicions of fraud or an inability to verify your identity. Read on to find out why banks may turn down your checking account application and what your options are.
How to Check Your ChexSystems Report
When reviewing your application for a checking account, banks and credit unions usually check your ChexSystems report. Banks and other financial institutions report information about their deposit account holders to ChexSystems, a banking reporting agency. ChexSystems uses that information to compile a record of your banking history. (It's similar to the way consumer credit bureaus use information reported by lenders to create your credit report.)
Once you've been denied a bank account, the bank must tell you why. Being rejected for a checking account is likely due to one or more negative items in your ChexSystems report. Fortunately, you're legally entitled to check your ChexSystems report once per year, or anytime your application for a bank account is rejected.
ChexSystems reports can reveal whether you've had a history of overdrafts, unpaid bank fees or other behavior that might cause a bank to deny you a checking account. To get a free copy of your ChexSystems report, visit the ChexSystems website. You'll need to provide your Social Security number and other personal information to file a request.
Reasons You Can Be Denied a Checking Account
The information in your ChexSystems report can reveal why your application for a checking account was denied. Common reasons banks may deny you a checking account include:
Negative Information on Your ChexSystems Report
For example, you might have a record of:
- Involuntary account closure
- Excessive overdrafts or nonsufficient funds incidents
- Unpaid fees or negative account balances, whether from an active or closed account
- Suspected fraud or identity theft
- Applying for too many bank accounts over a short period of time
Errors on Your ChexSystems Report
Negative information on your ChexSystems report is sometimes due to a mistake. For instance, you may have been confused with someone else who has a similar name, or your Social Security number may have been input incorrectly.
If you find any errors when you review your ChexSystems report, you have the right to dispute them with ChexSystems online, by calling 800-428-9623 or by mail. Before making this request, have any supporting documentation ready.
What to Do if You're Denied a Checking Account
Once you've been denied a checking account, take the following steps before you apply again.
- Clean up your ChexSystems report. Get a free copy of your report and address any negative information it contains.
- Pay any outstanding bank fees. Once you've paid your outstanding balance, you can ask the bank, credit union or collection agency to take the negative item off your ChexSystem report. You can also send a receipt for your payment to ChexSystems yourself and ask them to update your report.
- Address errors on your report. If you've found mistakes on your ChexSystems report, you have the right to initiate a dispute with ChexSystems to correct the errors. Be sure to provide documentation to support your request. Investigating disputed information on a ChexSystems report may take up to 30 days. Accurate negative information cannot be removed; however, it will drop off your report after five years.
If you've tried to resolve these issues but the bank still won't offer you a checking account, you have a couple of options.
Apply for a Second-Chance Bank Account
Second-chance bank accounts are designed for people who can't qualify for a standard checking account. The bank won't check your ChexSystems report when you apply for a second-chance checking account. These accounts typically don't offer all the features of standard checking accounts and may come with higher fees or minimum balance requirements. However, opening a second-chance bank account and using it responsibly can help you rebuild your banking history so you can eventually apply for a regular checking account again.
Get a Prepaid Debit Card
Prepaid debit cards can be used like regular debit cards to withdraw cash from ATMs or make purchases from retail stores or online. You don't need a bank account to get a prepaid debit card. Instead, you can load money onto the card at reloading locations or have your paycheck or government benefits directly deposited to the card. You can spend up to the amount loaded on the card.
You can buy prepaid debit cards at banks, online or from retailers such as supermarkets, drugstores and gas stations. Before buying a prepaid debit card, be sure you understand any fees the card charges. For instance, there may be fees for reloading the card, making a purchase or using an ATM. Unlike credit cards, prepaid card use isn't reported to credit unions and won't help you build a credit history. However, having a prepaid debit card can make it easier to make purchases until you can qualify for a checking account.
Do Banks Check Your Credit Score?
Banks don't check your credit score when you apply for a checking account. Instead, they review your ChexSystems report, which compiles information that banks and credit unions report about your bank account activity. Negative information such as overdrawn accounts, nonsufficient funds, unpaid fees or having your account closed may prompt a bank to deny your checking account application, but you won't get dinged for having less-than-stellar credit.
The Bottom Line
Getting denied for a checking account is a financial setback, to be sure, but one that's relatively easy to overcome. Correcting problems with your ChexSystems account and using a second-chance checking account responsibly can help you qualify for a regular checking account in the future.
While you're cleaning up your banking history, why not work on improving your credit too? Check your credit report and credit score to see where you stand. If your score needs a boost, paying down debt, paying bills on time and not applying for new credit can help you improve it—and enjoy a brighter financial future.