Banks and credit unions check a different report to learn about an applicant’s banking history. Learn more about how bank account approvals work, why you might be having trouble, and what to do when you get denied.
How Does Opening a Bank Account Work?
When you want to open a bank account, you may be surprised to find you can’t just open one—you need to apply. That said, in many cases, you can apply online, so you don’t actually have to go into a physical branch. When applying, you’ll typically need to provide your personal information such as your name, Social Security number, residential address, and email address. You may also need to show a government-issued ID to verify your identity (sometimes even two) and a utility bill to prove your address. Once you finish your application, the bank or credit union will often pull your report from a checking account screening company such as ChexSystems or Early Warning Services. These companies provide consumer reports that show how people have managed their checking and saving accounts in the past. They include information such as account closures, negative balances, overdrafts or too many returned checks, fraudulent activity, and more. If the bank or credit union you’re applying with reviews your banking history and finds it acceptable, you’ll be approved and can begin using your account.
Reasons Why You Can’t Open a Bank Account
In some cases, banks will see items on the checking account report that are concerning and will deny an applicant. What might they see that raises a red flag?
Unpaid Negative Balances on Closed Accounts
If you had a bank account within the past seven years that was closed with a negative balance, a bank may refuse to let you open a new account. In some cases, the bank may require you to pay the old unpaid charges before you can get approved. In other cases, it may not approve you until the event is off your report altogether.
Suspected Fraud
If you were suspected of fraud or identity theft related to a checking or savings account, you will likely not get approved by future banks as long as that mark is on your record.
Excessive Returned Checks or Overdrafts
If you have a history of writing checks that bounce or overdrawing your account with non-sufficient funds activity, that sends a message to banks that you may not be able to manage your money effectively. Overdrawing your account and writing bad checks can cost the bank money, so are grounds for an application denial.
Too Many Inquiries
The account report also shows how many bank accounts you’ve applied for. If you’ve applied for too many in a short amount of time, that can be a reason for financial institutions to hesitate in approving you. Banks and credit unions are looking for account holders who will manage their money responsibly, without becoming a liability. If you present risk due to problems like these on your past track record, you may get denied.
Your Name May Be Prohibited by OFAC
Banks are required to check your name against lists provided by the US Treasury’s Office of Foreign Asset Control (OFAC), including the Specially Designated Nationals, the Non-Specially Designated Nationals, and the PLC list. The bank may deny your application until you’re able to prove that you aren’t not the same individual as the prohibited person if your name is the same as someone who is on that list. It may deny your application and request that you reapply, or hold your application until you’re able to prove that it isn’t a correct match, depending on the bank’s policies.
What to Do If You’re Denied a Bank Account
So what should you do if a bank or credit union denies your application for a bank account? First, it’s important to understand why you were denied. You should then assess other options available to you.
Review Your Checking Account Report
When your application for a bank account is denied, the bank or credit union is required to give you an adverse action notice. The notice will list the reporting agency that provided the report the bank used to make the decision. The Fair Credit Reporting Act (FCRA) gives you the right to request a free report from that agency. Once you receive the report, review it carefully. If you spot any errors, you can file a dispute. If everything is correct, review the information to identify what caused you to be denied, and if there is anything you can do to fix it. For example, if you have an outstanding unpaid balance, you may be able to pay it off. In some cases, it will just be a waiting game. The FCRA requires the reporting companies to follow reasonable procedures to ensure maximum accuracy of the information. As a result, most information will fall off after seven years, while some will be disregarded after five years.
Shop Around
Each bank is going to have its own standards and requirements for approval, so just because you were denied by one doesn’t mean you’ll be denied by another. It can be helpful to check with up to three or four banks. You don’t want to overdo it because too many inquiries can also be a red flag. If you’re getting no after no, you may wish to explore lower-risk accounts, such as a prepaid checking account, which will allow you to store money, make payments and purchases, and send money to others based on your current account balance.
Look for Second-Chance Accounts
If you can’t get approved, you may not be out of luck. Many banks offer second-chance accounts for people who can’t open a regular account. These accounts often have more restrictions and higher costs, but are usually more affordable than using check cashing or money order services. For example, Wells Fargo offers the Clear Access Banking account as an alternative to its standard offering. The account doesn’t allow check writing or overdrafts. You can only use a debit card, and transactions will be denied if there aren’t sufficient funds in the account. It requires a $25 minimum deposit and charges a $5 monthly service fee.
The Bottom Line
Banks and credit unions minimize their risk by using bank account screening reports to vet applicants. If you’ve had any issues with a past account, such as an account closure, suspected fraud, or bounced checks, it could hurt your ability to get approved. However, it’s nothing that a bit of attention and some time can’t fix.
