Getting denied a bank account can be a frustrating experience, but it happens. Fortunately, there’s a way to know why you may have been denied, as well as some alternative options you can use.
The first thing to do if you’ve been denied a bank account is to review your ChexSystems report. Here’s what you need to know about your ChexSystems report, what it can tell you, and what options are available if you can’t open a checking account or savings account.
What is ChexSystems?
ChexSystems is a consumer reporting agency governed by the Fair Credit Reporting Act. It does a similar thing for banks and credit unions as the three national credit bureaus do when you apply for credit cards and personal loans and they run a hard credit check on your credit report. In this case, the banks request a ChexSystems report when you apply for a checking or savings account.
Your ChexSystems report contains a history of your deposit accounts with banks and credit unions. You’ll find information about certain activities and the reasons your accounts have been closed in the past, if applicable.
When you apply for a checking or savings account, the bank or credit union offering it will run your ChexSystems report to determine whether to approve your application. If you’ve had some issues with bank accounts in the past — we’ll cover potential problems in a minute — you may have a hard time getting a traditional bank account.
ChexSystems exists for the same reason credit bureaus exist: to provide financial institutions with the information they need to understand and manage risk. If you have some major negative information on your ChexSystems report, you may be deemed too risky for a new account.
Why you might be denied a bank account
There are several reasons why you might be denied a bank account based on your account history. And although financial institutions aren’t generally required to give you specifics, you can usually find the information you need on your ChexSystems report.
Some of the negative items you may find on your ChexSystems report could include:
- Involuntary account closure: The bank or credit union closed your account without your permission. This may happen if you’ve misused the account or broken other terms and conditions.
- Unpaid account balances: If you’ve overdrawn your account or your account has gone negative due to unpaid fees and you have not repaid the money, it could lead to an involuntary closure, a report filed with ChexSystems, and possibly even debt collection, which could damage your credit score too.
- Bounced checks and overdrafts: If you’ve overdrafted your account or bounced a check several times when you had insufficient funds, it may show up on your report.
- Account, debit card, or ATM abuse: This may include depositing empty envelopes with a dollar amount via ATM, exceeding transfer limits, and similar actions.
- Several recent new account applications: Applying for multiple bank accounts in a short period could be viewed as risky behavior.
- Suspected fraud or identity theft: For example, providing false information on your application, depositing fraudulent checks, and more.
Of course, the criteria for account approval can vary, depending on the bank or credit union. So although one institution may deny your application, it may be possible to get approved for a regular bank account somewhere else.
But before you do anything, it’s important to check your ChexSystems report and determine whether you need to take any other actions first.
How to see your ChexSystems report and what to do with it
In general, you can request a copy of your ChexSystems report for free every 12 months through the CheckSystems website. If you’ve been denied a bank account, though, you can get a free copy that doesn’t count toward that 12-month limit.
You can submit your request online, over the phone, by mail, or via fax. After the agency receives your request, you should receive your report within five business days.
Once you receive the report, read through it to identify the potential issues that could hurt your chances of getting a bank account. In the meantime, here’s a sample ChexSystems report you can review to get an idea of what to look for.
What do you do once you get your ChexSystems report? Here are a few steps you can take to improve your score and your likelihood of being approved for a bank account in the future:
1. Dispute incorrect details
In some cases, it’s possible for inaccurate information to have been added to your report. If this happens to you, you have the right to dispute it. The best course of action is to file a dispute directly with the bank or credit union that provided the details. But if you prefer, you can submit your dispute to ChexSystems, which will contact the source on your behalf.
After you’ve filed a dispute, the agency usually concludes its investigation within 30 days (21 days if you live in Maine). However, if you provide additional documentation to support your dispute during the investigation, it may delay it up to 15 days, so make sure to share all of your documentation upfront.
You’ll get a letter in the mail notifying you of the results, which may include revision or removal of the inaccurate details, once the investigation has completed.
2. Pay off overdrafted accounts
If you can afford to pay off an overdrafted account, do so quickly. After you’ve paid off the debt, you can request that the bank or credit union update its records to have the unpaid negative balance removed from your ChexSystems report.
Alternatively, you can get a receipt from the institution and submit it to ChexSystems directly to have them update your report.
3. Be patient
Negative items will remain on your ChexSystems report for up to five years. This means that if you’ve been denied a bank account based on something you can’t have removed through a dispute or payoff, you may simply need to wait until it falls off your report before you can apply for a regular bank account.
Your options if you can’t get a bank account
Fortunately, having a less-than-stellar ChexSystems report doesn’t mean you’re without options. If you’ve addressed any issues you can on your report and still can’t get approved for a new checking account or savings account, your two alternative options are second-chance bank accounts and prepaid debit cards.
Second-chance bank accounts
Second-chance checking accounts and savings accounts give you the opportunity to rebuild a positive banking history while you wait for negative items to be removed from your ChexSystems report. For the most part, they function similarly to regular bank accounts, with a few exceptions.
For example, you may run into some of the following limitations with second-chance banking:
- Higher fees
- No overdraft protection
- Able to deposit only cashier’s checks and money orders
- Allowing only debit card transactions
Of course, the features you get with a second-chance bank account can vary, depending on the bank or credit union. Take your time and research several options before you decide on one.
You can check with local credit unions, community banks, national banks for second-chance banking options. There are now even online banking options and financial products that fall into the second-chance category.
Here are just a few examples of banks that offer second-chance accounts:
Keep in mind that some institutions that offer second-chance banking may still review your ChexSystems report during the application process, and there’s no guarantee you’ll get approved. But these financial institutions are more likely to overlook certain things that traditional banks would not, and some may not review your ChexSystems report at all.
Prepaid debit cards
Prepaid debit cards are similar to a traditional debit card, but they aren’t tied to a checking account. As a result, prepaid card issuers don’t use your ChexSystems report when you apply, so you don’t have to worry about your past banking history catching up to you.
Unlike a traditional bank account, prepaid cards generally allow you to use only the money that you’ve loaded onto the card. But unlike cash, you can use prepaid cards to shop online, as well as in person. In some cases, you may have the option to opt in to overdraft protection, but that’s not a universal feature.
The best prepaid debit cards charge low fees and offer valuable features, such as sub-accounts for family members, purchase protection, an attached savings account, and more. You can even get a prepaid debit card with cashback rewards.
Keep in mind, though, that even the best options may still charge monthly fees. You may also be limited to certain options for fee-free reloads onto the card. In most cases, reloading with cash at a retailer may cost you money. And if you deposit checks via a mobile app, it can take up to 10 days to get access to your money unless you want to pay a fee.
However, you can generally get free reloads via direct deposit, transfers from other bank accounts (for example, if you have a family member with an account), and sometimes even transfers from a PayPal account.
Another drawback to using a prepaid debit card is that the card issuer won’t report your positive account activity to ChexSystems, so you won’t get the chance to rebuild your banking history.
The bottom line
Getting denied for a new bank account may feel like a personal attack, but it’s not. Just as lenders and credit card issuers check your credit history before approving an account, banks and credit unions use ChexSystems reports to manage their risks. If you’ve made some mistakes or been a victim of inaccurate information or even fraud, you may be deemed too risky to take on as an account holder.
The good news is you’re not left without options. Request a copy of your ChexSystems report as soon as you find out about the denial and determine how to address the information found in it.
If you can get your report updated by disputing erroneous information or paying off a negative balance, that may be enough to allow you to successfully apply again. But if not, compare second-chance bank accounts and prepaid debit cards to find the right solution for you until you can apply again in the future.