Key takeaways
- The reason why you can’t open a bank account may be due to unpaid fees, frequent overdrafts, or suspected fraud.
- Find out why you were denied and take steps to improve your banking history.
- You can still access banking services through second-chance accounts and prepaid debit cards.
Opening a bank account is an important first step to getting your finances on track, but it’s not always easy. Too many Americans find that they can’t open a bank account anywhere. The Federal Deposit Insurance Corporation found that 4.2% of American households (roughly 5.6 million households) do not have access to checking or savings accounts. This is commonly due to financial constraints, mistrust of banks, or an adverse banking history.
Your banking history matters. Like when you apply for a credit card, the financial institution may deny you an account due to past mistakes. If that happens, don’t worry—there are alternatives to consider.
What do you need to open an account?
The first step is to fill out a bank account application either online or in-person. The form will typically ask you for the following:
- Valid identification: Driver’s license, state ID, or passport
- Personal details: Full name, date of birth, address, and Social Security Number (SSN) or Tax Identification Number (TIN)
- Proof of address: Utility bill, lease agreement, or bank statement
- Initial deposit: Required to activate the account. The amount can vary.
The bank may ask additional questions about your financial history.
Why can’t I open a bank account?
There are numerous potential reasons why you can’t open a bank account. Maybe you’ve made frequent overdrafts, unpaid fees, or closed accounts in the past. Perhaps your credit score is poor. Or the bank may be unable to verify your identity. It could be your applications lack the required documents. No matter the issue, you can fix the situation.
We’ll go over solutions next so that you can open an account.
Ask why you were rejected
If you’re unsure why a bank won’t let you open an account, contact a representative to clarify the issue and help you find a solution. Federal law requires banks and credit unions to explain why your request was denied. They might inform you about issues like negative entries in consumer reporting agencies, poor credit scores, failure to meet minimum balance requirements, or errors in your application.
Identifying the issue will help you address it before applying again. The solution could be as straightforward as submitting additional identification. Or it might involve addressing past mistakes. Either way, knowing the problem is a good starting point.
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Verify your information
Ensure all your personal information is accurate and up to date. Errors can lead to denials. Banks usually work with third-party companies to verify the information on your application. If they can’t confirm the information, your application will be denied.
Double-check details like your address, Social Security number, and employment information. If you found that you listed incorrect data, consider reapplying. Having the correct information can improve your chances of approval.
Reapply at a different bank
Different financial institutions have different requirements. It’s essential to find one whose eligibility criteria you meet. Some institutions will always deny applicants who recently applied for bankruptcy. Others require consumers to pay outstanding bank fees before they approve applications. If your issue is bad credit, look for banks that don’t do credit checks. Most won’t check your score or look at your credit report.
Consider applying at a credit union, community bank, or online bank. These tend to have less stringent requirements so it may be easier to open a traditional checking account.
Get your checking account report
When you apply for a new account, the bank will likely pull your checking or savings account history from a consumer reporting agency, ChexSystems, or Early Warning Services. Consumer reporting agencies are like the credit bureaus for your bank accounts. They track negative banking activity such as bounced checks, overdrawing your account, and not paying fees. Past mistakes can be the reason for denial.
Your first step is to get a copy of your report. You can get a copy once every 12 months or whenever you are denied an account—if the reason is in the report. You can get your ChexSystems report by calling 800-428-9623 and your Early Warning Services report by calling 800-745-1560.
Check for errors
New
Look over your ChexSystems and Early Warning Services reports. See if you spot any fraudulent activity or inaccurate information. It could be a sign of identity theft. Ensure that your details (name, address, Social Security number) are correct. Any discrepancies can lead to issues when you apply for a new account.
If you find mistakes, gather evidence and dispute the error with the respective consumer reporting agency. The agency is required to investigate and determine if the information is correct. Once the errors have been removed, you can reapply.
Clean up your report
The next step is to fix past errors. Identify negative entries such as unpaid bank fees, negative balances, or overdrafts. Contact your previous bank and pay off any unsettled fees. Then, ask to have the negative activity removed from your report. The negative mark will be deleted once the bank tells the reporting agency that you paid the fees. Otherwise, it will stay on your report for up to five years.
If you’re unable to clean up your report, it’s time to consider other options. Just like not all financial institutions use credit checks, not all banks use reports from ChexSystems or Early Warning Services. Try to apply with one that doesn’t use these services. Then maintain a positive balance in your account and pay all required fees.
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Explore alternative banking options
A blemished ChexSystems report can make it challenging to get a standard checking or savings account. But not impossible. Here are a few options to consider.
Look into second-chance accounts
Second-chance checking accounts are specifically designed for customers who can’t qualify for a traditional bank account. Financial institutions that offer these accounts either do not check your ChexSystems report or are willing to overlook past mistakes. Most banks won’t do a credit check either.
Many credit unions, community banks, and online banks offer second-chance checking accounts. These accounts often have fewer frills but they let you access banking services. You will be able to set up direct deposit, pay bills online, and receive a debit card for online and in-store purchases plus ATM access.
Common limitations of second-chance checking accounts include:
- Stricter minimum balance requirements
- Higher monthly maintenance fee
- No overdraft protection
- Unable to write checks
- Restrictions on the number of transactions
- Caps on the amount you can withdraw or transfer
While the limitations can be challenging, these checking accounts let you prove that you can be trusted with a bank account. Often, if you keep your account in good standing for 12 months, your bank will transition it to a regular checking account without many restrictions and fees.
Consider a prepaid debit card
If a second-chance account isn’t the right fit or isn’t available, a prepaid debit card can be another viable option. You load money onto the card upfront and then withdraw cash or make purchases just as you would with any other debit card. The difference is prepaid cards are not linked to bank accounts, unlike traditional debit cards. Since they’re not linked to an account, you can only spend the money on the card. Therefore, you can’t overdraw your account or incur a negative balance.
Most prepaid cards do not require a credit check nor will the issuer look at your ChexSystems report. You can use them to receive direct deposits, pay bills online, or transfer funds to a savings account. The best cards come with low fees and access to thousands of ATMs.
There are downsides to prepaid cards. Some cards do charge fees – purchase fees, monthly maintenance fees, and reload fees. Prepaid cards also won’t help your credit – unlike credit cards – since they are not a form of borrowing. Nor will they help you build a positive banking history.
Despite limitations, prepaid cards can serve as valuable tools for managing daily expenses without the risk of overdraft fees.
Frequently asked questions
1. What are second-chance accounts?
Second-chance accounts are for consumers who cannot get a traditional bank account. These accounts typically have higher fees and restrictions, but they allow you to build a positive banking history. Many institutions will upgrade your account to a regular one after consistently maintaining a positive balance and paying fees on time.
2. What is ChexSystems?
ChexSystems is a consumer reporting agency that tracks past banking mistakes, including overdrafts, unpaid fees, and closed accounts. Financial institutions use this report to evaluate your application for a new account. If you have a negative report, your application may be rejected.
3. Are prepaid debit cards a good alternative to bank accounts?
Prepaid cards can be convenient if you can’t open a bank account. They allow you to load money, receive direct deposits, and make purchases without worrying about overdrafts. The problems with prepaid cards are they don’t help you get an account in the future and may come with fees.
4. Why can’t I open a bank account online?
If you can’t get a bank account, it’s likely due to negative entries like unpaid fees or overdrafts, in consumer reporting agency records, such as ChexSystems. Or the result of a poor credit history. Banks may also deny applications if they can’t verify your identity or if required documents are missing. Reviewing your reports and addressing any outstanding issues can help resolve the problem.
5. Why can’t I open a savings account?
The reasons for not being able to open a savings account are the same as when you can’t open a checking account. Review your report from from consumer reporting agencies like ChexSystems and Early Warning Services. Rejection may be due to a history of overdrafts, unpaid fees, or accounts closed for misuse. Addressing these issues can improve your chances of opening an account.
Bottom line
Facing rejection for a checking account can be frustrating. Take a breath and work to improve your situation. One option is to enroll in a free financial education course to learn how to handle money responsibly. These courses typically cover essential topics such as credit scores, savings accounts, and budgeting. Many financial institutions and community colleges offer free or affordable in-person and online classes. You can also go to a credit counselor for tips on better financial habits.
Then, open a second-chance checking account. As you maintain a positive balance and pay your dues monthly, your bank may transition it into a regular account.
Improving your banking history will require time and effort, but it is entirely worth the effort. Having a regular account can lead to financial stability and growth.
