Your money management mistakes could come back to bite you when you try to open a bank account. Many consumers are surprised when a bank tells them that their account applications have been rejected, but it’s a possibility if you let your credit deteriorate.The reason for being denied a savings or checking account could stem from the negative marks on a credit report known as the ChexSystems report.

Account Application Review Process

In a typical account application process, the bank uses your name and Social Security number to conduct a routine financial background check.

The very first step in this background check is usually taking a look at your ChexSystems report. The information included as part of the ChexSystems report reveals any bad consumer banking history such as outstanding overdrafts or bad checks you have written. Other information reported includes security alerts or freezes.

More than 80% of all U.S. commercial banks and credit unions have access to your ChexSystems report and almost all of them will pull it to review your application. If the negative marks on this report are recent, outstanding, or indicative of bad financial habits, there is a very good chance that a bank will reject your account application. Depending on the financial institution, a credit check may or may not be used to approve your application. Again, any delinquencies and red flags will show the bank that you are unable to manage money responsibly.

If your application does not pass their review of the ChexSystems report and credit reports, the bank will deny your new account request because they’ve identified you as a risk.

What Banks Worry About

Most consumers are confused as to how accounts meant for deposits can be subject to such scrutiny. To you, your history and your ability to maintain a basic account may seem unrelated. But to banks, your responsibility matters.

With a savings account you could cash a portion of a check before that check clears. If that check happens to be backed by insufficient funds, the bank essentially ends up giving you free money. You may have been in this situation accidentally but banks are suspicious of such activity (which shows up on your ChexSystems report) because it constitutes check fraud.

With a checking account, your bank may extend overdraft protection to your account. It guarantees that your transaction will be completed even if you do not have the funds. This leaves you with a negative balance and an overdraft fee. The bank offers this feature with the expectations that you’ll pay the fee and replenish your account. Any negative balance that remains outstanding for a long period of time can be turned over to a collection agency (which shows up on your credit reports).

What to Do if You’re Denied a Checking Account

1. Clear any marks on your ChexSystems and credit reports.

Under the Fair Credit Reporting Act, consumers are entitled to one free annual ChexSystems report and one free annual credit report from each of the three credit reporting agencies. For items on reports that are erroneous, dispute them with the reporting agency. For legitimate negative marks, contact the reporting bank or institution directly to rectify the situation.

2. Try a local bank or credit union.

Don’t get discouraged: 20% of commercial banks and credit unions do not use ChexSystems. Visit a smaller bank or credit union and ask if they conduct ChexSystems or credit report reviews. You don’t want to apply and have them reject you because these inquiries will show up on your reports. Also, credit unions are usually more lenient when it comes to negative marks on your reports.

3. Look for ‘Second Chance’ checking accounts.

Since checking accounts are integral parts of consumer banking, some institutions have begun catering to the consumers who have difficulty opening checking accounts due to poor credit and banking history. For example, Wells Fargo offers the Opportunity Package. Many other institutions offer second chance checking accounts, but be sure to check that they are insured by the FDIC or NCUSIF.

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Simon Zhen

Simon is a research analyst for MyBankTracker. He is an expert on consumer banking products, bank innovations and financial technology.
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  • Rah Rah

    Good Stuff!

  • April

    I have a checking savings account at bank of the west. I went in to open a second checking account as payee for Minor son ssi payment. The bank denied me because of my expirian report. No bad report in chex system. They told me was Denied. I was confused because they did not tell me they were going to run a credit report. They did not have me sign anything allowing them to either. Just asked me my social. Are they supposed to tell disclose this to me or ask permission??

    • Simon Zhen

      It’s weird that they pulled your credit report to open a new bank account, especially when you already have account with them.

      Yes, you must agree to have your credit pulled, but they shouldn’t have needed to do it in the first place. What was their reason for doing so? If you feel that this action was wrongly made, you can report the incident to the Consumer Financial Protection Bureau and they may be able to clear things up.

      After all, that little credit pull could have affected your credit score.

      • April

        Yes that’s what I said. Very frustrating. I’m going to call the 800 number for the bank and ask questions.

      • April

        Thank you for your reply. I will look into filing a complaint.
        The reason I was told is; that they run everyone’s expirian and Chex system who is opening a new checking account even if your not opening a line of credit. But this was told to me after she already ran it and told me I was denied. I have nothing negative in the chex system database. I am already aware of my not to great credit and if they had told me they require to run expirian credit report I would have declined.