Denied a Bank Account? How Second-Chance Checking Works

Being denied a checking account can feel strange if you were expecting the process to work like opening an ordinary savings account. The decision may have little to do with your traditional credit score. Banks and credit unions can use separate specialty reports that focus on your history with deposit accounts, including previous closures, unpaid negative balances, check activity, and suspected fraud.

A denial is therefore a signal to investigate before submitting applications at several more institutions. The report may contain a correct problem that needs to be resolved, an error that should be disputed, or information that one bank treats more strictly than another.

Why a Bank Can Deny a Checking-Account Application

CFPB says banks and credit unions use checking-account reporting companies to help decide whether to offer an account and what type of account to offer.

Negative information can include:

• an unpaid negative balance from a previous account;
• an account that the bank closed involuntarily;
• a history of bounced checks or overdrafts;
• suspected fraud connected with a checking account; or
• problems associated with a joint account.

Two widely used checking-account reporting companies are Chex Systems and Early Warning Services, although CFPB lists additional companies in the deposit-account and payments-screening market.

A checking-account consumer report is not the same as a traditional credit report. CFPB specifically notes that someone can have a strong credit score and still have an unfavorable checking-account report.

If your difficulty is simply gathering identification or meeting an opening requirement rather than a screening denial, see How to Open a Bank Account: What You Need.

Read the Adverse-Action Notice Before You Apply Somewhere Else

If a bank or credit union declines your application based on a checking-account consumer report, federal law gives you important information about the decision.

CFPB says the institution must provide an adverse-action notice that includes the name and contact information of the checking-account reporting company that provided the report used in the decision.

Keep that notice. It tells you where to begin.

Do not assume that ChexSystems was used simply because it is well known. The institution may have used Early Warning Services or another reporting company, and the relevant report is the one identified in your notice.

Request Your Checking-Account Consumer Report

CFPB says you have the right to request a free copy of your checking-account consumer report every 12 months from nationwide reporting companies. You are also entitled to a free copy when you receive an adverse-action notice based on a report.

For an adverse-action report, request it promptly. Federal adverse-action disclosures generally tell consumers they can obtain a free copy from the identified reporting agency if they request it within 60 days of receiving the notice.

When the report arrives, compare it with your own records.

Check:

• your name and identifying information;
• accounts you recognize;
• which bank or credit union supplied each item;
• account-opening and closure dates;
• whether a closure is described correctly;
• reported balances;
• fraud indicators you do not recognize; and
• duplicate or mixed-file information.

If the denial involved a bank-screening report, reviewing only Equifax, Experian, and TransUnion may not answer the question. Those traditional credit reports and deposit-account screening reports serve different purposes.

Dispute Inaccurate Information Instead of Working Around It

If the report contains information that is inaccurate or does not belong to you, dispute it.

CFPB says checking-account reporting companies must investigate consumer disputes of inaccurate information and correct inaccuracies. Banks and credit unions that supplied the disputed information also have obligations to investigate and correct information under applicable Fair Credit Reporting Act rules.

A useful dispute should identify:

• the specific item you believe is wrong;
• why it is wrong;
• the correction you are requesting; and
• copies of documents that support your position.

Keep copies of the dispute, supporting records, and proof of delivery when you submit documents by mail.

If the information resulted from identity theft or an account you never opened, treat that as a fraud problem rather than merely asking a bank to overlook it.

Accurate Negative Information May Stay Even After You Pay

Paying an old overdraft or negative balance can still be worthwhile, particularly because CFPB says some banks and credit unions require old unpaid charges or fees to be paid before they will open a new account.

But payment and deletion are different questions.

CFPB explains that negative checking-account information can remain on a consumer report for up to seven years depending on the reporting company, and an involuntary closure can remain reportable even if an overdrawn balance is later repaid. CFPB also notes that some checking-account reporting companies disregard information once it is more than five years old.

So if the information is accurate:

1. ask the former institution for the exact amount still owed;
2. pay through an official channel if you decide to resolve it;
3. keep proof of payment;
4. check that the reporting company updates inaccurate balance information if necessary; and
5. do not assume the entire historical entry must disappear immediately.

What Is a Second-Chance Checking Account?

CFPB describes a second-chance bank account as a reduced-service and reduced-fee account generally intended for people whose banking history prevents them from opening a regular bank account.

FDIC also describes “second chance” banking as an option some banks provide for people who have had banking problems in the past.

The exact product is not standardized. A second-chance account may differ from a bank’s mainstream checking account in areas such as:

• monthly fees;
• overdraft availability;
• check-writing;
• minimum opening deposit;
• ATM network;
• debit-card access;
• mobile deposit;
• bill pay;
• direct deposit; and
• eligibility requirements.

Some institutions use a different product name rather than the phrase “second chance checking.” CFPB also notes that banks and credit unions may offer lower-risk accounts designed to prevent overdraft and overdraft fees, and may rely less heavily on checking-account reports for these products.

Second-Chance Does Not Mean “Take Any Account You Can Get”

Difficulty opening an account makes it tempting to accept the first approval. Still compare the account like any other financial product.

Ask:

Our Bank Fees Explained guide can help you compare the costs that matter most.

Bank On Certified Accounts Are Another Option to Check

FDIC’s GetBanked resource points consumers toward certified Bank On accounts in addition to second-chance banking.

FDIC says certified Bank On accounts have low and transparent costs and do not allow overdraft or insufficient-funds fees.

That can make them useful to investigate when a conventional checking account is unavailable or when you specifically want an account designed to reduce overdraft risk.

Bank On certification does not mean every participating institution must approve every applicant. Check the individual bank or credit union’s eligibility and screening policy.

Also confirm that the institution itself is federally insured before depositing money.

Different Banks Can Treat the Same Report Differently

A denial at one bank does not establish a universal ban on bank accounts.

CFPB says each bank or credit union has its own policies for how checking-account report information affects eligibility. Institutions can consider factors such as how much time has passed, whether an old balance was paid, and the type of account being requested.

This means a sensible sequence is:

1. understand the original denial;
2. correct inaccurate reporting;
3. resolve unpaid obligations when appropriate;
4. ask the original institution whether another account is available; and
5. compare another bank or credit union if necessary.

Do not submit a dozen applications blindly. Start with institutions whose account terms and eligibility approach fit your situation.

Once you have several realistic options, use How to Choose a Bank or Credit Union to compare insurance, fees, ATM access, digital tools, and service.

Use the New Account to Avoid Repeating the Original Problem

Getting approved solves access. Keeping the account healthy requires a separate plan.

Set up:

• low-balance alerts;
• transaction alerts;
• direct deposit if useful;
• a small checking buffer when possible;
• a list of recurring automatic debits;
• clear overdraft settings;
• regular statement review; and
• secure login and multifactor authentication when available.

If an account does not permit overdrafts, understand what happens instead. A declined debit-card purchase is different from a recurring bill or check that fails because there is not enough money available.

When you automate bills, make sure due dates and paydays work together. Our Bills on Autopilot checklist covers recurring payments and monitoring.

A Denial Checklist

A checking-account denial is not a reason to guess what went wrong. The consumer-reporting system gives you a trail to follow: identify the report, verify the information, correct mistakes, deal with accurate unresolved balances, and then choose an account built for the situation you have now.