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It’s certainly a frustrating experience to be denied a checking account. The problem could be with 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 what the issue is, you can take steps to remedy the situation and hopefully get approved for a bank account.
A checking account serves as a hub for many people’s financial lives. It’s where your paycheck is likely deposited and how you pay your bills. Here’s the information you need to move forward when you can’t open a bank account.
Key Points
• Banks often use ChexSystems reports to review your banking history, and negative activity may lead to denial.
• Common reasons for denial include unpaid overdrafts, account closures, errors on your 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 can improve your chances of approval.
• If you’re denied, options such as second-chance accounts or prepaid debit cards can 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 common reasons why you may be unable to open a bank account.
Negative Information on ChexSystems
Typically, banks don’t pull your credit score when you apply for an account. They do, however, tend to look into your prior checking account activity via ChexSystems, the most popular banking reporting agency. ChexSystems provides a score that reflects how well you’ve been handling your banking life. The banks 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 can cause banks to consider you a high-risk customer for financial services. Negative information can 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 you may have 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. 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 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 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 After You’ve Been Denied Opening a Bank Account
If you’ve been denied a checking account, you may well want to apply elsewhere immediately. But a word of warning: Doing so could cause your application to be rejected because you are requesting too many new accounts too often. To maximize your chances of success, take the following steps before you reapply.
1. Find Out Why Your Application Was Denied and 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 can 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. Ask to have the negative activity removed. Otherwise, it can stay on your report for up to five years.
Consider Alternative Solutions
If you’ve been denied a bank account and can’t quickly resolve the issue, here are a couple of workarounds 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 can help improve your financial life if managed responsibly.
Over time, you may be able to upgrade a second-chance account to a regular checking account by maintaining a positive balance and avoiding issues. These accounts can 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 good 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 in any way. But it can be a valuable stopgap measure when you don’t have a bank account and need a convenient way to transfer funds.
Recommended: How Often Should You Monitor Your Checking Account?
The Takeaway
Having your application for a bank account denied is an upsetting experience that can definitely limit your financial life. The root of the problem may be that ChexSystems or another consumer reporting agency has reported that you are a high-risk customer. Or your application could have been rejected because mistakes were made, or your identity couldn’t be verified. By taking steps to remove errors and repair damage, you’ll be on the road to getting the account you need to keep your financial life humming along.
When you’re ready to apply for a checking account again, check out what SoFi has to offer.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Why am I getting denied to open a bank account?
There are several reasons you could be denied a bank 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 likely have a negative history with 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, you may be able to upgrade to a regular checking account.
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.
Photo credit: iStock/skynesher
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