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If you are denied a checking account, the problem might be your past banking history, an error on your bank reports, or a mistake you made filling out your application, among other reasons. Once you find out why you can’t open a bank account, you can take steps to remedy the situation and hopefully get approved.
A checking account serves as a hub for many people’s financial lives. It’s where your paycheck is likely deposited and it may be how you pay your bills. Here’s what to do if you are refused a bank account and the information you need to move forward with a checking account.
Key Points
• Banks often use ChexSystems reports to review banking history, and negative activity may lead to denial.
• Common reasons for denial typically include unpaid overdrafts, account closures, errors on the report, or mistakes on your application.
• Your application may be denied if your identity can’t be verified due to missing or mismatched information.
• Reviewing your ChexSystems report, fixing errors, and resolving outstanding balances may improve your chances of approval.
• If you’re denied a bank account, options such as second-chance accounts or prepaid debit cards might help you access basic financial services while you work to rebuild your banking history.
Reasons Why You Can’t Open a Bank Account
There are a few possible reasons why an individual can’t open a bank account, including these.:
Negative Information on ChexSystems
When you apply for a bank account, banks tend to review your prior banking account activity via ChexSystems, a popular banking reporting agency. ChexSystems provides information on your banking history. The banks typically use this information to decide whether to qualify you for a checking account.
Negative items on your ChexSystems report may result in you being denied a checking account. They might cause banks to consider you a high-risk customer for financial services. Negative information may include:
• Forced account closures
• Bounced checks or overdrafts
• Suspected fraud or identity theft
• Unpaid fees or negative bank balances from a current or closed account
• Too many account applications submitted over a short period
These negative marks on your record can last up to five years.
Errors on Your ChexSystems Report
Just as there may be credit report errors, so too can your ChexSystems report have mistakes. This could trigger your bank account application to be rejected, even if your past checking account management was good.
You can obtain a copy of your ChexSystems report once a year or whenever your application for a bank account is denied based on the report. Keep in mind that applying for a bank account too many times counts as a black mark against you, which is important to know as you are managing your money. If you get rejected, it’s probably a good idea to investigate your banking report vs. just submitting more applications. You’ll find details below on how to access your report.
Bankruptcy
If you have filed for bankruptcy, the bank may find out about it if it reviews your credit report as part of the application process. However, not all banks review credit reports when you open a checking account, and approval criteria can vary by institution.
Your Identity Can’t Be Verified
An application for a bank account, whether it’s a high-yield savings account or a checking account may be rejected because there are mistakes on it and/or the information entered does not match the documents you submitted.
For example, if you’ve recently moved, the verification source may not recognize your new address. Or, you might have answered security questions incorrectly when prompted by the verification system.
Here are other reasons your identity might not be verified:
• Your submission had an error or typo (perhaps in your Social Security number).
• Your credit profile may be affected by inaccurate information in your credit reports.
• Your credit report could be frozen if there is suspicion of fraud or identity theft.
• Your documents may have expired.
• Your documents may be illegible.
• You may have submitted a phone number that is not associated with your address.
• Your proof of identity, such as a copy of your driver’s license or passport, and the information typed into the application don’t match.
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What to Do if You Are Refused a Bank Account
If you’ve been denied a checking account, you may want to switch banks and apply elsewhere. But a word of warning: Doing so might cause your application to be rejected because you are requesting too many new accounts too often. To maximize your chances of success, it’s generally wise to take the following steps before you reapply.
1. Ask the Bank to Reconsider
If your application is denied based on information in a consumer report, the bank is required by law to provide you with an adverse action notice explaining the decision. However, banks make their own approval decisions based on their internal criteria. It may be worth contacting the bank to ask for more details and request a review. You can also ask whether a typo in your application or an outdated overdraft affected the decision.
2. Check Your Banking Report
You may obtain a copy of your ChexSystems report once a year and whenever you are denied a bank account, if the report is the cause of your rejection. Visit the ChexSystems website or call 800-428-9623.
3. Look for Errors and Fraudulent Activity
Read the report from ChexSystems carefully, looking for fraudulent activity or mistakes in information such as your name, address, phone number, or Social Security number. For any errors, contact the agency, and be ready to provide supporting information to ensure the issue gets corrected.
4. Clean Up Your Report
Look at the negative actions in your report and fix them. You can file a dispute for anything inaccurate by going to the ChexSystems website. Pay off any debts and unsettled fees. Then, ask to have the negative activity removed. Otherwise, it can stay on your report for up to five years.
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Consider Alternative Solutions
If you’ve been denied a bank account and can’t quickly resolve the issue, here are a couple of options to consider.
Second-Chance Checking Account
Some banking institutions offer a second-chance account to those denied a traditional checking account. These accounts typically provide services that are limited, such as caps on debit card usage, no paper checks, and no overdraft protection. Also worth noting: These accounts often come with higher-than-usual fees. Nevertheless, this kind of account may help improve your financial life if managed responsibly.
After you’ve provided what you need to open a bank account and you use a second-chance account for a while, you might want to apply for a traditional checking account again. Over time, you may be able to upgrade to a regular checking account by maintaining a positive balance and avoiding issues. These accounts may help you build a stronger banking history.
Prepaid Debit Cards
If you need a way to spend on daily expenses and pay bills without a bank account, prepaid debit cards could be a solution. You load a dollar value onto these cards (they’re available at many retailers, such as gas stations and supermarkets), and you can then tap or swipe to use the funds.
Make sure you’re aware of any fees you might incur when using or reloading your card, and know that the usage of these cards isn’t reported. In other words, it won’t build your credit score or your banking history. But it may be a valuable stopgap measure when you don’t have a bank account and need a convenient way to transfer funds.
The Takeaway
Having an application for a bank account denied is an upsetting experience that could limit your financial life. The reason for the denial may be that ChexSystems or another consumer banking reporting agency reported that you are a high-risk customer. Or your application might have been rejected because mistakes were made, or your identity couldn’t be verified. By taking steps to remove errors and repair damage, you may be on the road to getting the account you need to keep your financial life humming along.
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FAQ
Why can’t I open a checking account?
There are several reasons you could be denied a checking account, including mistakes on your application, negative activity on your checking account history, or errors on your ChexSystems or similar report. Banks may also deny applications based on their internal policies and screening criteria.
Can you get a bank account if you have committed fraud?
If you’ve committed fraud, you will probably have a negative history with banking reporting agency ChexSystems, and you will likely have your bank account application declined. However, you might be able to get a second-chance checking account. If you maintain a positive balance and avoid any issues with that account, you may be able to upgrade to a regular checking account over time.
Can a bank refuse to let you open an account?
Yes, banks can decide whether or not to offer an account to an applicant. They might deny an account if you have negative activity, such as unpaid overdraft fees and account closures on your ChexSystems report, or if there’s a mistake on your application. Banks aren’t always required to explain why your application was denied, but they must provide a notice if the decision was based on information in a consumer report.
How long does negative information stay on a ChexSystems report?
Negative information typically stays on a ChexSystems report for five years. However, if you fix the negative actions on the report, or dispute any errors, you can ask for the negative information to be removed.
Can I get a bank account with bad credit?
It’s possible. Banks typically don’t check credit reports when you apply for a bank account. Instead, they check your ChexSystems report for any negative banking activity. However, if your bank account application is denied, you could apply for a second-chance bank account instead. Over time, if this account is managed responsibly, you may be able to upgrade to a traditional bank account.
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