The short version
- If you've been denied a checking account, you can pull a ChexSystems report to understand why and create an action plan to rebuild your banking reputation.
- Some financial institutions offer “second-chance” checking accounts to help individuals who wouldn't ordinarily qualify for a bank account.
- Other alternative banking options including prepaid debit cards, peer-to-peer platforms, neobanks, and credit unions.
What to do if you’ve been denied a checking account
There are different reasons why you might find yourself in a position where you can’t get a checking account. Before pursuing an alternative banking option, do some research first to figure out why you were denied a checking account in the first place.
Step #1: Pull a ChexSystems report to understand why you were denied
Chex Systems is a consumer reporting agency specializing in checking and savings accounts. The company provides information to banks and credit unions about account holders who may have a history of account mismanagement, such as too many overdrafts, unpaid fees, bounced checks, or a negative balance.
Banks pull your ChexSystems report before issuing you a checking account like they would check your credit before approving a loan.
According to the Fair Credit Reporting Act, you are entitled to a free copy of your ChexSystems report if a bank denies you a checking account. You can access your file once every 12 months. To request your report go to the ChexSystems website.
Review the information in your file to make sure everything is valid. ChexSystems keeps your records for up to five years. You may have to use an alternative banking option until enough time passes to return to good standing.
More: How to build a strong credit profile
Step #2: Dispute errors and ask for the bank to reconsider
When you pull your report, you may find an error. If this is the case, you can file a dispute with ChexSystems to have the inaccurate information removed.
If the information on your report is correct, consider working with your creditors to settle outstanding debts. Once you pay your debt, request a receipt from your creditor. Submit it to ChexSystems and ask them to remove debt from your file.
Once you’ve cleared up any issues, ask your bank to reconsider. While the bank isn’t obligated to issue you a checking account, providing information that you’ve taken steps to rectify your negative report could signal that you are a trustworthy customer.
Step #3: Apply for a second-chance checking account
If you're still denied a regular checking account, ask your bank if they have any second-chance options. Some banks offer alternative checking accounts that don’t pull a ChexSystems report and are designed for people who aren’t able to qualify for a regular account.
The purpose of a second-chance checking account is to help you rebuild your credit. This type of account usually has fewer benefits than a traditional checking account. For example, you may need a direct deposit to open the account, or it may not qualify for overdraft protection.
A few national banks like Wells Fargo, Capital One, and U.S. Bank offer general checking accounts that don’t require a ChexSystems report to open an account.
More: Second chance banking - bank accounts for bad credit
Step #4: Make a plan To rebuild your credit
ChexSystems is a valuable tool to help banks to make quick decisions. However, it isn’t perfect. The system doesn’t account for unexpected financial hardships that can negatively impact your banking reputation. As a result, it can leave you without access to traditional banking services.
After you’ve pulled your report and discussed your options with your bank, develop a plan to rebuild your credit. This might entail repaying outstanding debts or developing a budget to avoid overdrafts on your account in the future.
Alternative banking options
You may be in a situation where you don’t qualify for a second-chance alternative checking account. If that’s the case, there are a few other alternatives you can choose from while working toward rebuilding your credit.
Prepaid debit cards
You can purchase a prepaid debit card at retail stores like Walmart. Unlike a typical debit card, which links to a bank account, you load a prepaid debit card with a set amount of money before you use it. Like a bank account, you can set up a prepaid debit card to receive direct deposits.
A prepaid debit card allows you to do many of the same things as a debit card linked to a checking account. This includes shopping at a store, paying bills, or transferring money to other people.
While a prepaid debit card might be a good option if you can’t get a bank account, it does have a few drawbacks. More fees may be associated with maintaining the card or withdrawing money than you might encounter with a typical checking account. And because all of your money is stored on your card – rather than in a separate bank account – it could be harder to recover your money if your card is lost or stolen.
Peer-to-peer payment apps
With more and more financial services going mobile, digital apps are an option to consider if you’ve been denied a traditional checking account.
PayPal is a financial services platform that can act as a bank account. Your PayPal account allows you to receive money and pay bills. And just like a bank, you can apply for a PayPal debit card to easily access money stored in your bank account.
Other peer-to-peer financial apps, like Cash App, may be viable alternatives. Like PayPal, you can store your money directly on Cash App and use the Cash App card to make purchases or deposit money into the app.
A significant downside is that PayPal and some other fintech apps may not be FDIC-insured. This means money stored in your account is not protected in case the platform goes under or your money is stolen.
Additionally, there may be limits to what you can do when an online banking account isn’t linked to a traditional bank account. Cash App, for example, restricts how much money an unverified user can send and receive each month.
A neobank is a bank that doesn’t have any physical locations, which allows them to offer lower fees than traditional banks. While some neobanks do have their own banking charters, most are fintech companies that partner with registered banks to provide checking and savings products to their customers.
Some of these financial companies such as Chime and Varo, offer second-chance checking accounts with fewer fees than traditional accounts. These online-only accounts may be a good option if you don’t qualify for a traditional account or want to avoid brick-and-mortar banks.
While neobanks are a good option for many people, there are some drawbacks to consider. For example, you may not have access to as many ATMs as you would with a traditional bank. Additionally, customer service options may be more limited with a neobank than a traditional bank.
If you’ve been denied a checking account by a traditional bank, you may have better luck with a credit union. Credit unions are member-owned financial institutions that often offer lower fees and better interest rates than traditional banks.
To join a credit union, you typically need to live, work, or worship in the same community as the credit union. Some credit unions also have field of membership requirements, such as working in a certain industry.
Credit unions may be more likely to offer second-chance checking accounts than traditional banks. They may also be more willing to work with you if you have a history of bad credit or overdrafts.
The downside of credit unions is that their membership requirements can make them difficult to join, even though their financial requirements may be more flexible. Many credit unions also have fewer branches and ATM locations than traditional banks.
More: Credit Union vs Bank - what's the difference?
The bottom line
Being denied a bank checking account can be challenging. But if you work with your bank to learn more about why they rejected you, you can begin to improve your banking reputation and set yourself up for future success. In the meantime, choosing one of the alternative banking options listed above can help you meet your daily banking needs.
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