What if the Bank Denies Your Account Application?
Updated: August 2, 2024
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In today's world, having a bank account is both a convenience and a necessity. It provides a safe way to deposit funds, make transactions and build credit over time. But getting an account isn’t guaranteed — you have to apply, and facing a denial can be a frustrating experience.
If the bank denies your application, you can address the issue by understanding common reasons for denial and taking actionable steps to increase your chances for approval.
Common reasons for bank account denial include inaccurate applications, poor account history and outstanding debts.
Consumers have the right to know the reason for their denial and receive access to their ChexSystems and Early Warning Services reports, which track banking history.
Understanding why you were denied, disputing errors on your ChexSystems report and addressing outstanding debts can improve your chances of future approval.
Explore alternative banking options such as second chance bank accounts, prepaid debit cards and credit unions.
You might be surprised to learn that your application for a bank account can be denied. As with loan applications, banks review potential customers to manage their own risk. The first step to resolving a denied bank account application is understanding the reason for your denial.
Here are some common reasons why you might be denied a bank account:
Incomplete or Inaccurate Application
Errors or missing information in your application, such as an incorrect Social Security number or address discrepancy, can lead to denial.
Involuntary Account Closure History
Banks may not approve your account if you've had a bank account closed involuntarily in the past due to issues like fraud or multiple overdrafts.
Poor Account Management History
A history of excessive overdrafts, frequent non-sufficient funds (NSF) occurrences or unpaid fees at previous banks may be a reason for your denial.
Negative Account Balances
Even after an account is closed, owing money to another bank due to unpaid fees or negative balances can affect your chances of approval.
Suspected Fraud or Identity Theft
Banks have systems to detect suspicious activity. If your application raises concerns about potential fraud or identity theft, it might be denied.
Excessive Account Applications
Applying for multiple bank accounts within a short period can make you appear risky to banks.
Joint Account Holder Issues
If you're applying for a joint account and your co-applicant has a negative banking history, it can impact your application.
Banks and credit unions are obligated by law to provide you with a written notice explaining the reasons for denying your application. This notice should help you understand the specific areas that led to the decision and plan your next steps.
Getting denied for a bank account can be disappointing, but it doesn't mean you're shut out forever. Whether your application was flagged due to a negative history or for another reason, there are immediate steps you can take to improve your chances of approval after being denied a bank account.
Contact the bank and ask about the specific reasons for the denial. It might be able to provide additional information or suggest some alternative options.
These companies provide banks with information about your banking history. You are entitled to a free copy of your ChexSystems report and Early Warning Services report (usually included with your standard credit report) once every 12 months.
File a dispute if you find errors or outdated information on your ChexSystems or Early Warning Services report. Both ChexSystems and Early Warning Services allow you to dispute errors through their websites.
Resolve any unpaid fees from previous accounts, as these can negatively affect your application.
Focus on improving your overall financial status, which can show financial responsibility to potential banks.
Other banking options can provide similar services and help you manage your finances effectively if you're denied a bank account. Consider exploring these alternatives if you're facing roadblocks with traditional banks.
Alternative | Pros | Cons |
|---|---|---|
Second-Chance Bank Account | Offers individuals with past banking challenges a path to rebuild their credit and access essential services. Features typically include low fees, direct deposit and online banking. These accounts often transition to regular checking accounts after a period of responsible use. | May have monthly fees, limited features compared to traditional accounts and potentially lower withdrawal limits. |
Prepaid Debit Cards | Provide a convenient way to manage spending and make purchases without a traditional bank account. Funds are loaded onto the card, which can be used anywhere debit cards are accepted. | May come with activation fees, monthly fees and limited features. May not help build credit history or offer the full range of services provided by traditional banks. |
Credit Unions | Offer many of the same services as banks but are member-owned and often have a more community-focused approach. May offer more personalized service and lower fees than traditional banks. | May have membership requirements, such as living or working in a specific area. |
It depends. Requirements for opening accounts with digital banks are often less strict compared to traditional banks. Digital banks may focus more on your current income and banking activity rather than past credit history, and some also offer checking accounts specifically designed for people who are rebuilding their financial health.
However, they also have some drawbacks. For example, access to physical cash might be limited, or they may rely on partner ATMs for withdrawals. Some may have monthly maintenance fees, ATM withdrawal fees, minimum balance requirements and limited customer service options.
Banks have the discretion to approve or deny account applications, but consumers have certain rights when it comes to understanding these decisions. Here is a summary of consumer rights to be aware of:
The Right to a Written Explanation
The Fair Credit Reporting Act (FCRA) applies to bank accounts as well as credit cards. Under FCRA, you have the right to receive a written explanation from the bank detailing the main reason(s) for your application denial.
The Right to Dispute Inaccurate Information
Banks often rely on ChexSystems, a consumer reporting agency specializing in bank account history, to review an applicant's risk. You have the right to request a free copy of your ChexSystems report annually.
If you find inaccurate or outdated information on your ChexSystems report, you have the right to dispute it directly with ChexSystems. If any information is incorrect, ChexSystems must correct it and notify any banks that received the report in the past year.
The Right to File a Complaint
The Consumer Financial Protection Bureau (CFPB) is a government agency that serves to protect consumer rights in financial matters. You can file a complaint with the CFPB if you believe your bank account application was denied unfairly.
If your bank account application was denied, these answers to commonly asked questions can help you move forward with confidence.
There could be several reasons for being denied a bank account, including negative information in your ChexSystems report. This report tracks your banking history, including bounced checks, unpaid fees and involuntary account closures.
No, a bank account application denial itself doesn't directly impact your credit score, as ChexSystems and credit bureaus are separate entities.
You can reapply for a bank account after being denied, but it's a good idea to address the reasons for the denial first. Review your ChexSystems report, correct errors and consider waiting a few months to show an improved financial history.
Some online banks and credit unions have more lenient criteria, and some offer second chance checking accounts designed for people with past banking challenges.
Being denied a bank account likely impacts your ability to open one at other banks since most banks use ChexSystems. If one bank denies your application based on information in your report, other banks will likely also see it.
About Alvin Yam, CFP
Alvin Yam is a certified financial planner (CFP) with over 15 years of experience working with individuals and corporations. Before founding Paraiba Wealth Management, he was a director at HSBC and a financial consultant at Charles Schwab. Yam is MoneyGeek's expert consultant on wealth management and personal banking.
Yam earned his bachelor's degree in political science from the University of California, San Diego, and his Master of Business Administration from Loyola Marymount University.
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