5 Reasons You Can Be Denied a Bank Account -- and What to Do About It
If you're turned down for a new bank account, you have options. Keep reading to learn more.
You don't need a good credit score to open a new bank account. But that doesn't mean banks approve everyone who asks for one. When you apply at a bank, if certain red flags appear, you could be denied a checking or savings account.
Fortunately, in a lot of cases, you may be able to take steps to fix the situation. Keep reading to learn about five reasons you can be denied a bank account and what you can do.
1. Your ChexSystems report contains negative information
Banks run a ChexSystems report when you apply for a new account. A ChexSystem report contains information that includes:
- Checking and savings account closures for the past five years. This includes information about any money you owe for unpaid fees or an overdrafted account.
- The number of times you've applied to open a new account within the past three years.
- Returned (bounced) checks for the past four years.
- Check orders for the past five years.
In addition to ChexSystems, banks might also receive information about your banking history from Telecheck, Early Warning Services, or another credit reporting agency.
What you can do:
First, review a copy of your ChexSystems report for free by visiting ChexSystems.com.
If you owe money to a former bank, you may have to pay it if you want your ChexSystems report to reflect that the account was satisfied. Otherwise, you may have to wait until it ages off and is no longer pulled in your ChexSystems report (approximately four to five years) before you can open a regular account at a new bank.
2. Your ChexSystems report contains errors
Mistakes happen. The good news is that ChexSystems has a process in place for correcting them. Possible reasons for inaccurate information include:
- You were mixed up with someone else
- You were the victim of identity theft
- Human error
What you can do:
Follow the instructions on ChexSystems' home page to initiate a dispute.
3. Your current account may have negative items
If your current bank account history shows overdrafts, excessive withdrawals from savings, or late bill payments, a bank might turn you down for a new account.
What you can do:
Put safety measures in place to help you avoid outcomes that may cause a bank to deny you a new account. For example:
- To prevent late bill payments, set up an automatic payment for the minimum due each month on your bills.
- Use a debit card instead of paper checks to minimize the risk of overdrafts
- Watch out for overdraft fees. Depending on your bank, overdraft protection might come with a hefty fee and not be worth the costs. For more information, check out our guide on overdraft protection.
- Use a budgeting app. The best budgeting apps will help you monitor your spending. That way, you can track how much money you spend every month so that you don't have to move it in and out of savings.
4. You filed for bankruptcy
Each bank handles bankruptcy differently. Some banks won't open new accounts for people who recently had a bankruptcy discharged. This is most common if you discharged a debt at the same bank where you want to open the new account.
What you can do:
Shop around for a new bank. And be prepared for the possibility that you will be limited to opening a savings account and not a checking account.
Before you open a new bank account after bankruptcy, take stock of your remaining debts. If you have debts that couldn't be discharged in the bankruptcy, those creditors may be able to legally seize the funds in your new bank account.
5. Your identity can't be verified
Federal law requires financial institutions to verify the identity of all account holders. Most banks require two forms of identification, and at least one must be government issued.
Identity verification can fail for a number of reasons, including a frozen credit report, an information mismatch, a typo, or insufficient documentation.
What you can do:
Make sure your credit reports are unlocked at all three major credit bureaus (Equifax, Experian, and TransUnion).
Also, gather any documentation you can find that shows who you are. Try to come up with at least two of the following items:
- Driver's license/state-issued I.D.
- Foreign government–issued I.D.
- Passport or passport card
- Work I.D.
- Social Security card
- Birth certificate
- Military I.D.
- Government employee I.D.
- DHS employment authorization card
- Permanent resident card (green card)
- Credit card
- Health insurance card
- Marriage certificate
- Native American document
- School I.D.
- Voter registration card
Talk to a branch manager to find out if they can be flexible enough to accept whatever you have. If one bank says no, try another. Worst case scenario, you'll have to obtain new ID documents.
How to get a new bank account after you're denied
If you can't open a regular bank account, look for a second chance account. For this type of account, either the bank won't check your ChexSystems report or they will run it but offer more lenient approval criteria.
Just make sure to watch out for fees. Some, but not all, second chance checking accounts come with fees, which can include:
- Monthly fee
- Statement fee
- Debit card fee
- Other fees
Life without a bank account can be expensive. It costs money to cash checks or pay bills on an a la carte basis. Also, your money may be at risk of loss or theft if you have to carry it around in cash rather than store it in a federally insured bank. Take the reins on your finances by removing obstacles to a new account or finding an account that is more appropriate for your situation.
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