If you have ever been denied when applying for a checking account, you're not alone. About 15% of Americans have been denied an account, while nearly 7.7% of U.S. households don't even have a bank account. If you've had banking issues in the past, it could come back to haunt you, thanks to a company called ChexSystems, which tracks your checking account history. What should you do when you're denied a checking account? Here's our guide to some alternative banking options.
1. Use ChexSystems to Understand What Happened
ChexSystems is a consumer reporting agency. It stores the good, the bad, and the plain old weird in their files and shares that information with banks. If banks deem your checking history undesirable or problematic, you could be denied a checking account.
Financial institutions (like banks) report consumer behavior to ChexSystems, which is regulated by the Fair Credit Reporting Act. Behaviors that can get reported would frequently be having insufficient funds in your bank account and a bank closing your account for lack of use, among others.
How Long does the Information stay in the Systems?
Information reported by banks stays in the ChexSystem database for five years. After five years, it falls off your report. If you want something to be removed before the five years are up, the financial institution that reported you must request that the item is removed. In certain states, applicable law may require ChexSystems to remove the derogatory item without the bank requesting it.
You may also take action to fix a derogatory mark and still have it remain on your report. For example, if you owed a bank fee and the bank reported you, the mark may stay on your report even if you pay the bank fee. You have to request a receipt of your payoff from the bank and send it to ChexSystem. From there, ChexSystem should remove the mark. But simply paying the overdue fee itself isn't enough to remove the negative item from your report history.
After checking your ChexSystem account, you'll have an understanding of why you were denied a checking account. But it can take months, if not years, to fix a problem. If you need to open a bank account now, then look at some of these other options available.
2. Find a Second-chance Checking Account
Some banks offer what is commonly known as “second-chance checking accounts”. These accounts are:
- Specifically designed for people looking for a fresh banking start.
- Generally have a monthly fee.
- May come with other requirements such as linking a direct deposit.
- As these accounts are designed to help you rebuild your banking history, they have less flexibility than traditional checking accounts.
3. Find a Bank That Doesn't Use One of the Reporting Agencies
If you're committed to making your bank account history better, you can open a checking account at a bank that doesn't use a reporting agency.
There are banks with no credit check to open an account and banks that don't report banking history to ChexSystems. About 20% of all U.S. banks don't use ChexSystems, so there are plenty of options to choose from.
Some of the checking accounts from banks that don't use reporting agencies include:
- OnJuno, which offers a checking account with a bonus rate and cash back.
- Chase Total Checking from Chase Bank
- GoBank Account from GreenDot Bank
- Classic Checking from USAA
Opening a checking account at one of these banks is an opportunity to build good banking habits within an institution. And using alternative banking options to rebuild your banking history will help you become a better candidate for a checking account in the future.
4. Use an Online Bank as your Banking Alternative
Many newer banks are able to offer services for customers with less than perfect checking account histories. Some of these are online-only banks, meaning they have less overhead. This can mean they have lower fees and better rates than traditional banks. Here are our recommended online banks.
What do You Need to Open an Account?
Once you choose an institution you like, the next step is figuring out what you need to open a bank account. You will need:
- A valid ID, such as a driver license or passport
- Social Security number
- Your contact information, like your address and phone number or maybe only your email address
And you may also need to provide an initial deposit amount, depending on the bank you've chosen. You usually have the option of providing cash or transferring that amount from another bank account.
5. Use Prepaid Debit Cards as a Banking Alternative
If you can't or don't want to open any bank account, you can use prepaid debit cards. This type of card allows you to load money onto it, then use it as you would a debit card from a bank.
Some prepaid cards offer the ability to have your paycheck loaded directly onto the card. This essentially makes your prepaid card a debit card without having to have a bank account at all.
Most major credit card companies offer some sort of prepaid debit card option. Visa and Mastercard are two companies that offer them.
A prepaid debit card does come with fees. And those fees can eat away at your available balance if you're not careful. Some fees to keep an eye out for are:
- Purchase fee (fee for buying the prepaid card)
- Load fee (fee for putting money onto the card)
- Monthly fee
- Inactivity fee
Before opening any prepaid debit card, do your research thoroughly. You'll want to make sure that it has the features that your financial situation requires.
There Are Plenty of Alternative Banking Options out There
A bank denying you a checking account is not the end of the world. You can take advantage of the many options that banks offer to people with a spotty history to fix past banking mistakes and improve your ChexSystems report. Taking direct action to fix the mistakes you've made is the best way to prevent banking problems in the future.
From second-chance checking accounts to alternative banks and even to prepaid debit cards, there are many tools at your disposal for turning around your relationship with banks.