Having a checking or savings account comes with benefits like ATM access and cash-back rewards, but not everyone who applies for these accounts gets accepted. An application denial can result from past credit or banking issues or even from a lack of proper documentation.
No matter the reason, it’s not an uncommon issue, as it happens to many people. Fortunately, you still have options for managing your finances in much the same way as if you had a traditional account.
So, what should you do if your bank account application is denied? Instead of being surprised or frustrated when you are denied, consider how you might use a prepaid card to access many of the same services. Read on to learn your next steps, including the ways prepaid debit cards can help you stay on track with your finances and how to open a bank account after denial. Use these strategies to come out ahead and with a brighter financial future.
Why banks deny applications
Most banking denials happen because of a negative account history in systems used to pull reports. These systems include ChexSystems, which helps banks see past checking and savings activity. If the bank sees involuntary account closures, too many overdrafts, or unpaid negative balances, it could deny a new account opening. Banks may also deny an account if they see suspected fraud or account abuse, such as opening multiple accounts at once to take advantage of bonus offers they wouldn’t get otherwise.
Even if there was no confirmed identity theft or fraud, the bank could deny the account to protect itself from future financial loss. They can err on the side of caution to keep accounts from being used illegally or in ways that harm their other customers or shareholders.
Banks also may deny accounts if they can’t verify an applicant’s identity. Currently, Federal Customer Identification Program rules require banks to verify details such as legal name, Social Security numbers, and date of birth. Missing, invalid, or inconsistent information could cause an application to be rejected, even if it was a mistake.
Finally, while having bad credit won’t typically keep you from getting a traditional account, it could prevent banks from extending some account features, such as overdraft protection. For banks where these features are standard for all accounts, bad credit could limit access to that bank entirely.
4 options if you get denied for a bank account
Getting a “no” from the bank can be discouraging, but it’s not the end of the story. Use these tips to get more information about your financial situation and move forward with a new banking strategy. You may find you end up in an even better situation than when you started.
Option 1: Find out why you were denied
Even if you have no interest in reapplying for a bank account, you should look into your credit and banking history to see what the bank sees. Under the Fair Credit Reporting Act (FCRA), you have a right to see consumer credit reports for free every 12 months, as well as when you get denied for a credit or banking service.
In this case, the ChexSystems report may be at play here, but the bank should tell you which report they used to make the decision. ChexSystems has a form for requesting your report on their website, along with information on the type of history included, and how to dispute any inaccurate information.
You may find that you have unresolved accounts to pay or that your personal information was used for fraudulent purposes. Whatever the case, this is a chance to correct issues, which can ultimately help with banking and credit opportunities down the road. If the report history seems like too much to handle on your own, consider getting help through financial counseling or consumer protection services.
In the case of documentation errors, you may have a mismatch between the information you provided the bank and the information on file with the government. Name misspellings, Social Security errors, or address changes can all prevent an application from going through. Find out just what happened and how you can resolve it in the future.
Option 2: Explore second-chance banking
Some banks are willing to overlook negative items on ChexSystems reports, or don’t use the reports at all. They proudly offer banking alternatives for bad history, sometimes called “second chance” accounts, to those with past issues. Examples include Second Chance Checking from Credit Union 1, Clear Access Checking from Wells Fargo, and Fresh Start Checking from WaFd. Banks may use these accounts as a way for customers to build up their banking history so they can access traditional services again.
These second-chance checking accounts don’t have some of the features of more selective bank accounts. Customers may pay higher fees or have limited account services. In general, it’s important to compare costs and features before deciding on any bank account, so you know what you’re getting for the price.
Option 3: Consider a prepaid card as an immediate solution
Another option is to get a prepaid debit card right away. You typically won’t need a credit check1 or good banking history to acquire one. However, you will need to provide some of the same documentation as what's needed for opening a traditional checking account, so make sure any documentation discrepancies have been resolved before you provide it to the prepaid card company.
Prepaid cards help you get paid without a bank account, offering many of the same benefits as traditional banking, such as:
- Payroll deposit
- A convenient way to store and access cash
- The ability to make purchases online or in-store
- Compatibility with digital wallets
The Netspend® Prepaid Card is one option that offers all of these services and is quick to set up. Just visit a local store to purchase or order a new card online. Other options include Green Dot and Serve, but check the fees for each to find the card that fits your needs and budget.
Option 4: Build better banking eligibility over time
You may have already seen your ChexSystems report, but you should still request a free update every year. Keep a close eye on any changes or things that seem off. You’ll want to address concerns right away and not let them linger.
The same goes for your credit report from the three credit reporting bureaus: Experian, TransUnion, and Equifax. If anything doesn’t seem right, reach out to each agency to get a correction, or contact the FTC for information on how to report fraud or impersonation.
This is also the time to pay down old bank debts. Start with unpaid fees, overdrafts, and charge-offs. This sets your report history on the right track and repairs your reputation with banks you may want to access in the future. Be sure to get the amount you owe from the bank in writing, along with a confirmation of the paid-off account once the debt is satisfied.
Once the debt is paid, check your ChexSystems report to be sure it’s been updated. It may not show as paid for a few months, and negative items can stay on your report for years. However, paid or settled accounts still may look more favorable to banks.
Finally, treat your prepaid accounts well, avoiding errors, overdrafts, or unpaid fees. You can do this by keeping a budget that clearly tracks what you get paid and what you spend, and checking your account balance often. Most prepaid card apps come with real-time account updates so you can see the exact amount in your account at any time. While many prepaid accounts won’t let your account go below $0, others charge fees for different services that can be added even if you don’t have money in your account. Keep an eye on what services you use (and how much they cost) to ensure you budget for all card uses.
If you’re not sure how to manage money without a bank account, you can sign up for any of the resources listed at the Office of the Comptroller of the Currency. Some second-chance bank accounts also come with free financial literacy courses and budgeting tools, so you can improve your financial game even as you're building your banking reputation.
Moving forward with financial confidence
While it’s not fun to be turned down for traditional checking or savings accounts, you still have options, including digging into why you were declined so you can take action. Whether you choose to get a prepaid card, open a second-chance bank account, fix your past banking issues, or a combination of all, you’ll be well on your way to improving your financial future.
