American Hope Resources - Help & Assistance Programs

Why Banks Deny Checking Accounts

Opening a checking account may look like a simple exercise, but financial institutions sometimes deny consumers access to this basic service.

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There are well known situations which cause banks to refuse access to a checking account. When a customer requests a checking account, the bank or credit union checks the applicant’s prior bank history with a report provided by one of several reporting agencies such as ChexSystems. If the report contains behavior that the bank considers to be undesirable, they may deny the checking account.

In this guide, we offer a list of potential reasons why banks and credit unions deny checking accounts. We also include suggestions to address those issues and successfully get an account.

Unpaid Fees

When closing a previous bank account, make sure there are no outstanding fees left unpaid. Insufficient funds fees or early account closure fees are two common items account holders might leave unchecked when ending a banking relationship.

These unpaid fees are recorded in ChexSystems’ consumer database and are made available for all banks and credit unions to see. Financial institutions want to attract customers with clean records. A bank history with even one outstanding fee may be enough to deny access to a checking account.

Upon request, banks will readily provide a summary statement with any remaining unpaid fees. Removing these items from the record can significantly improve your chances of getting a new checking account. Some banks help their customers avoid these fees with features such as overdraft protection. Account features are often included in a bank’s policies statement.

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Insufficient funds or overdraft fees are often unavoidable. In these cases, the bank will issue an overdraft fee to be paid as soon as possible. Overdrawing too often or failing to quickly pay the fees will have a negative effect on your bank history and could result in being blacklisted on ChexSystems database.

It might be beneficial to purchase overdraft protection to make up the difference. Overdraft protection can be linked to a savings account, money market account or line of credit. Keep in mind that depending on the bank, there may be additional charges whenever the service is used. Otherwise, consumers can expect a bank to charge between $20 and $35 each time an overdraft takes place.

Even with protection, it’s wise to avoid overdrafts. Information about how often an account holder overdrafts will still show up in their bank report regardless of protection.

Bounced Checks

A check that cannot be processed by the recipient due to insufficient funds in the writer’s account is usually called a bounced check or “rubber check.” Usually the check is returned by the bank and the account holder is charged with a fee. Bounced checks are a significant red flag in someone’s banking report. Financial institutions are known to give a harsh response to a record of bounced checks and this history can follow a consumer for years thereafter.

Banks and credit unions are interested in customers that show awareness with their account balances and manage their money responsibly. Keeping track of accounts is easier with online or mobile banking and can help improve a client’s reputation.

Bad Credit

A credit score is a numerical value that represents how financially responsible someone has been in the past. It is compiled with information from the credit history of a person, including past credit reports, monthly payments, and more. The bank history of a citizen can be shared between reporting agencies such as ChexSystems to credit reporting companies like FICO.

Credit scores are a tool generally reserved by financial institutions to analyze mortgage, auto loan, credit card, or line of credit applications. However, banks could take credit scores into consideration before approving a request to open a checking account.

There is no quick way to fix a credit score. Information about irresponsible behavior (such as late payments and delinquencies) will remain on your credit report for up to 10 years. However, any actions taken that improve a credit score will have a positive effect your relationship with banks. Paying bills on time, addressing unpaid fees and lowering outstanding debt are some ways to raise a credit score. Be patient, it may take some time to accumulate enough good marks after being denied a bank account.

If you have been denied a bank account, please read our post on Second Chance Checking Accounts.

Eric Tomasso