Couple getting money from an ATM

With all the advertising banks do, it seems as though they are ever eager for customers. So it can feel even worse when they tell you that yes, bank accounts are available, but no, you can’t have one. Unfortunately it can happen for a number of reasons; in fact, the 2017 FDIC National Survey of Unbanked and Underbanked Households finds that 14% of people who don’t have a bank account say it’s because they had ID, credit or former bank account problems. Let’s find out why you might be denied a checking account, and how to polish your financial life so you’ll be one of those sought-after customers.

Why Would Someone Be Rejected by the Bank?

There are several reasons that you might be denied a bank account.

  • Poor past financial performance: Did you bounce checks or overdraw your account in the past? Even if you’ve changed your ways, these past infractions can haunt you. According to a report from the National Consumer Law Center, more than 80% of banks use reports from bank account screening consumer reporting agencies (CRAs) like ChexSystems, TeleCheck or EWS to determine whether you qualify for a bank account. The most restrictive service is ChexSystems, while TeleCheck will only report bad checks.
  • Insufficient identification: Most banks need two forms of ID, and the most common are a Social Security card, driver’s license, state ID, passport or birth certificate. However, an earlier FDIC survey also found that nonstandard forms of ID are often accepted: Nearly 60% of banks accepted a non-U.S. passport, 40% accepted ID from a foreign consulate and 73% accepted an Individual Taxpayer ID Number (ITIN) as an alternative to a Social Security number.
  • Poor credit: Your credit report provides a snapshot of your tendency to pay your bills, essentially summing up whether you are a “good risk.” While it’s usually used by lenders to assess your financial history before offering you a mortgage or a credit card, many banks will look at it too.
  • Minimum opening balance: According to the FDIC, almost half of banks required an initial deposit of at least $100 to open a checking account.

Four Strategies if You’ve Been Rejected by the Bank

Were you denied a bank account because you fell short in one of those areas? Here are four ways to rectify the situation.

Figure Out What Your Purported Transgression Is – and Fix It

If you’ve been denied a bank account because you were flagged by one of the CRAs as a poor risk, find out what the issue is. Standards vary about what constitutes “fraud” or “account abuse,” so you might be have been wrongfully accused and/or the infractions may have been a result of identity theft. However, if it is accurate, a blemish can stay on your report for up to five years.

You can find out what the bank is seeing from ChexSystems or EWS by filling out the disclosure form on their websites to get a copy of your report. For TeleCheck, you need to send the request by mail. You also should check your credit report. Each of these services can be used once a year for free.

If the problems are fixable or your account has been flagged in error, work with the services to rectify the issue. If the financial challenges are legitimate, talk to your bank about what you can do to get back in their good graces.

If it’s a low credit score weighing you down, now is the time to improve it. Bonus: It will help you qualify for better interest rates on loans, which is particularly useful when it’s time to get a mortgage! Two ways to burnish your credit are to pay your bills on time and seek to keep your credit utilization low (that is, the amount of credit that is available that you actually use).

Open a “Second Chance” Account

The FDIC found that just over 20% of banks offer a “second chance” account to those who have initially been rejected by the bank. Talk with your local manager about how to obtain one – although you should note that they often come with additional fees.

Consider a Prepaid Debit Card

Another option is to get a prepaid debit card, where you load funds in advance and then spend them down. Again, watch the fees and note that this is not a “credit card,” so you won’t be building credit. You can also talk to your bank about a “secured credit card,” where the bank holds some of your money to prevent a default as a tool to help bolster your credit.

Find a Bank That Doesn’t Use One of the Reporting Agencies

Finally, if you were denied a checking account and are unable to reach a workable solution with your bank to open a checking account, you might need to switch banks. A good option is to try a credit union, which might have more lenient standards, or one of these nine banks that don’t use background services such as ChexSystems to evaluate new customers.

While it can be disconcerting to be rejected by a bank, the good news is that you now know there’s an important aspect of your financial life that needs fixing. The sooner you get started, the sooner you’ll be able to enjoy the fruits of a solid financial history that can help you pursue your goals.

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