Why Was I Denied a Checking Account?

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If you were recently denied for a checking account, it could be due to a few issues. Finding out why you were not approved and figuring out a path forward is typically not too difficult.

Read on to find out why you may have been denied for a checking account from your bank or credit union—and what steps you can take next.

Checking Your ChexSystems Report

When you apply for a new checking account, banks and credit unions typically check your ChexSystems report. ChexSystems is a debit bureau, which collects information from banks and other financial institutions. While not a part of your credit report, your ChexSystems report is similar in that it shows previous account activity, in this case with banks and credit unions.

Banks use ChexSystems reports when deciding whether to offer a bank account to a new customer. If you were denied a checking account, it's likely due to one or more negative items in your ChexSystems report.

The good news is you can check your ChexSystems report—and you should if you were rejected when you applied for a checking account. Federal law allows you to obtain a copy of your ChexSystems report once a year and, additionally, whenever you are denied a bank account. You can obtain a free copy of your ChexSystems report by going to the ChexSystems website.

Reasons You May Have Been Denied a Checking Account

The following issues are the most common reasons banks deny checking account applications:

1. Negative Information on Your ChexSystems Report

If you were denied a checking account, it's likely due to one or more negative items on your ChexSystems report. That negative information typically includes one or more of the following:

  • Involuntary account closure
  • Too many past bounced checks or overdrafts
  • Unpaid fees or negative balances from a current or closed account
  • Suspected fraud or identity theft
  • Too many accounts applied for over a short amount of time

2. Errors on your ChexSystems Report

Negative information on your ChexSystems report may be a result of errors. For example, you might have been confused with another person with a similar name, or perhaps there was an error inputting your Social Security number. Fortunately, you can find these errors when you check your ChexSystems report and dispute them with ChexSystems. Be sure to have any supporting documentation handy when you are attempting to erase errors from your report.

3. Bad Credit

Because ChexSystems collects data related to both debit and credit accounts, a low credit score can affect your chances of getting a checking account. Banks and credit unions may report unpaid fees and debts to collection agencies, which can then submit that information to a credit reporting bureau. This can result in a lower credit score.

If you attempt to resolve these issues and your bank still refuses to offer you a checking account, you can look into a second-chance bank account.

Exploring a Second-Chance Checking Account

If you're unable to open a traditional checking account, you might want to consider a so-called second-chance checking account. These are accounts offered to people who have been denied a standard checking account, and they don't use ChexSystems to qualify customers.

Second-chance accounts work much like standard checking accounts and can help you improve your banking history over time so you can apply for a traditional checking account in the future. However, they may have higher monthly fees, a required minimum balance or other requirements. In addition, second-chance accounts don't always offer certain benefits of standard accounts, such as overdraft protection, checks and access to direct deposit. Even with these limitations, however, the benefits of a second-chance checking account—mainly, helping improve your banking history—may outweigh the costs.

Steps to Take Before Reapplying for a Checking Account

Before trying to qualify for a standard checking account after you've been denied, take the following steps:

  1. Clean up your ChexSystems report. Request a copy of your report, and take steps to address any negative information you find there. For starters, pay off any unpaid fees you owe. Also look for errors on your report. If you find any, you can initiate a dispute with ChexSystems and provide supporting documentation. The investigation may take up to 30 days. Any negative items that can't be removed from your report should drop off your report after five years.
  2. Request a copy of your free credit report. Both your ChexSystems report and your credit report give you a good idea of where you stand financially. Building credit as you also work to improve your banking history will help ensure a better financial future.

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