If you’ve tried opening a checking account and the bank or credit union denied your application, it may be because a checking account reporting company has negative information in its files about your checking history.

So if you’ve made checking account mistakes in the past – especially issues like frequent overdrafts or unpaid obligations – you may be denied when you apply for a new savings or checking account. In addition, some banks pull your credit report and will deny your application if your credit score doesn’t meet their requirements.

Banks usually get information about your banking history from a company called ChexSystems, which maintains a file of information on your checking account history similar to your credit report.ChexSystems, which is governed by the Fair Credit Reporting Act just like larger credit reporting bureaus, simply record negative banking account information. Items like non-sufficient funds overdrafts and unpaid bank account liens will stay on your report for up to five years.

You may have negative information in your file if you had a checking account before and you:

• Have an unpaid negative balance on that account, such as from an overdraft, that you have not repaid and the account was closed by the bank or credit union (this is called an “involuntary closure”). • Were suspected of fraud related to a checking account.

• Had a joint account with someone else who had these types of problems.

Banks and credit unions supply this type of negative information to checking account reporting companies, such as Chex Systems and Early Warning Services. These companies compile and use the information to create reports of an individual’s prior checking account history. Banks and credit unions may use these reports to help determine whether to offer you a checking account and the type of checking account to offer you. (Retailers may use a similar report to decide if they will accept your checks.)

Find out why you’ve been denied

The first step you should take when you’re denied a checking account is to figure out why you’ve been denied. Under the Fair Credit Reporting Act, banks are required to tell you why you’ve been denied a bank account.

The most likely reason to be denied an account is that you’ve got an outstanding debt with a bank – often because of unpaid bank fees. But you may also be denied because of a history of frequent overdrafts. Just ask the bank who has denied you exactly what the issue is.

Your next step is likely to check out your ChexSystems report, which you can access at ConsumerDebit.com. Like your credit reports, you can get one free copy of your ChexSystems report every twelve months. The report will show which bank or banks have reported you and why.

If you owe a bank money according to your ChexSystems report, you’ll need to either negotiate with the bank you owe to pay off the debt, or dispute the report as inaccurate.

If you pay off your debt with a bank, they’ll have to report the account as paid to ChexSystems, which may help your case next time you apply for an account. If the report is wrong, you can talk to the reporting bank first. If they refuse to deal with the matter, dispute the information with ChexSystems, who is required by law to investigate the claim.

The fact of the matter is that it can take months – or even years – to clean up your ChexSystems report. In the meantime, you may need to take advantage of other bank account options so that you can pay your mortgage on time and avoid hefty transfer or cashier’s check fees.

Consider alternatives

1. Try opening an account at another bank

First, you should look at other banks and credit unions in your area. You may not qualify for the best account at the bank, but many banks may work with you by having you pay higher fees. You may be required to open a CD as collateral for your account. Credit unions are generally much easier to work with, as well. You should find a bank that will allow you to open a savings account. This will help you to build a relationship with the bank, which may open the door in a few years.

2. “Second chance” checking accounts

Ask around for banks or credit unions that offer second chance checking accounts. These accounts include most of the same features as regular checking accounts – checks, ATM access, online bill pay, debit cards, money transfers, and direct deposit.

The main difference is that these accounts often come with higher annual/monthly maintenance fees or require a larger opening deposit. Basically, these accounts are set up to give consumers a “second chance” while protecting the bank from losing too much money.

Some banks that offer second chance checking accounts don’t even check your ChexSystems file. Others will require that any outstanding balances from old banks (reported in your ChexSystems file) be paid off before you can get a second chance account.

A second chance checking account can be a good way to establish a betterbank account history, and can often lead you into a lower-fee, traditional checking account within a few months to a year.

3. Alternative checking accounts

As companies seek to reach out to unbanked or under-banked Americans, more are coming up with tempting checking account alternatives. These alternatives often come with lots of features and low fees, though you’ll want to do your research so you know exactly what you’re getting into.

3. Prepaid cards

Prepaid cards were once known for their outrageous fees, but they’re becoming much more reasonable in recent years. Many prepaid cards function very similarly to checking accounts – even allowing for automatic paycheck deposits.

Be sure you research prepaid card options to ensure that you’re getting the best possible deal – especially when it comes to fees. And be sure you choose a card with the basic functions you need most, whether that’s paying bills online or getting gas at the pump.

4. Secured credit cards

A secured credit card is a good way to build your credit, which may help you get a checking account in the future. With these cards, you pay a deposit up front. The deposit is held by the card issuer in case of default. Sometimes these deposits also earn interest like a checking account.

Secured credit cards generally have a very low credit limit and a high interest rate. But if you use a secured card to pay your bills each month, paying it off at the end of the month, you won’t have to worry about interest.

One thing to note: you’ll need to be sure you have a way to actually pay off your secured credit card if you don’t have a bank account!

Leave a comment

Your email address will not be published.