ChexSystems, which is governed by the Fair Credit Reporting Act just like larger credit reporting bureaus, simply record negative banking account information. Items like non-sufficient funds overdrafts and unpaid bank account liens will stay on your report for up to five years.
So if you’ve made checking account mistakes in the past – especially issues like frequent overdrafts or unpaid obligations – you may be denied when you apply for a new savings or checking account. In addition, some banks pull your credit report and will deny your application if your credit score doesn’t meet their requirements.
If you do get denied, don’t worry, though; you’ve got plenty of alternative options.
Find Out Why You’ve Been Denied
The first step you should take when you’re denied a checking account is to figure out why you’ve been denied. Under the Fair Credit Reporting Act, banks are required to tell you why you’ve been denied a bank account.
The most likely reason to be denied an account is that you’ve got an outstanding debt with a bank – often because of unpaid bank fees. But you may also be denied because of a history of frequent overdrafts. Just ask the bank who has denied you exactly what the issue is.
Your next step is likely to check out your ChexSystems report, which you can access at ConsumerDebit.com. Like your credit reports, you can get one free copy of your ChexSystems report every twelve months. The report will show which bank or banks have reported you and why.
If you owe a bank money according to your ChexSystems report, you’ll need to either negotiate with the bank you owe to pay off the debt, or dispute the report as inaccurate.
If you pay off your debt with a bank, they’ll have to report the account as paid to ChexSystems, which may help your case next time you apply for an account. If the report is wrong, you can talk to the reporting bank first. If they refuse to deal with the matter, dispute the information with ChexSystems, who is required by law to investigate the claim.
The fact of the matter is that it can take months – or even years – to clean up your ChexSystems report. In the meantime, you may need to take advantage of other bank account options so that you can pay your mortgage on time and avoid hefty transfer or cashier’s check fees.
1. Alternative checking accounts
As companies seek to reach out to unbanked or underbanked Americans, more are coming up with tempting checking account alternatives. These alternatives often come with lots of features and low fees, though you’ll want to do your research so you know exactly what you’re getting into.
Chime offers a terrific online savings and checking account geared toward savers. Using the Chime checkbook feature, you can send checks to anyone you wish; fee free.
There are no account opening fees, no monthly maintenance fees and the only fee you’re likely to incur is ATM fees for using a network not in the Chime network.
Another great benefit of Chime banking is that you can get paid 2 days earlier with direct deposit. Your money doesn’t get stuck in “electronic limbo” as Chime puts it.
To open a Chime banking account, there is no credit check. When approved, you’ll have access to a Chime Visa Debit Card, a Spending Account and an optional savings account should you need one.
Read More: Chime Bank Review – Fee-Free Banking
Bluebird from American Express is another terrific alternative. This card is very similar to a checking account. It lets you may direct deposit, use online bill pay, and even write checks.
Bluebird is also unique in that it lets you set up family sub-accounts, so you can give your teenager or another family member limited access to your Bluebird funds. The fee structure is quite palatable; there are no monthly maintenance fees or annual fees and no fees to add cash to your card when done so at Walmart (or by Direct Deposit). The fee that is likely to impact you the most is that if you upload cash at a non-Walmart location, the cost is $3.95.
You can also send money between Bluebird accounts if you need to but there are fees attached to that as well. (Up to $16 for sending $2,500).
2. Prepaid cards
Prepaid cards were once known for their outrageous fees, but they’re becoming much more reasonable in recent years. Many prepaid cards function very similarly to checking accounts – even allowing for automatic paycheck deposits.
Be sure you research prepaid card options to ensure that you’re getting the best possible deal – especially when it comes to fees. And be sure you choose a card with the basic functions you need most, whether that’s paying bills online or getting gas at the pump.
The Netspend® Visa® Prepaid Card offers cardmembers a variety of feature that makes it one of our favorites. You can use Netspend Direct Deposit to get paid 2 days faster than other direct deposits and there are never any late fees or interest charged because this isn’t a credit card.
During tax season, you can get your refund deposited directly onto your Netspend® Visa® Prepaid Card. And, there’s a mobile app that will help you manage your account and receive text messages and alerts.
3. Secured credit cards
A secured credit card is a good way to build your credit, which may help you get a checking account in the future. With these cards, you pay a deposit up front. The deposit is held by the card issuer in case of default. Sometimes these deposits also earn interest like a checking account.
Secured credit cards generally have a very low credit limit and a high interest rate. But if you use a secured card to pay your bills each month, paying it off at the end of the month, you won’t have to worry about interest. One thing to note: you’ll need to be sure you have a way to actually pay off your secured credit card if you don’t have a bank account!
Capital One issues our favorite secured credit card. The Capital One® Secured MasterCard® can offer you the opportunity to improve your credit score while using a credit card for any everyday purchase you need.
The minimum deposit to open the account is either $49, $99 or $200 and after that, the card acts like a a regular credit card (with a low credit limit).
The annual fee for this card is $0 so it won’t cost you anything if you pay your balance off regularly. And, after a while, Capital One will look at your history and potentially bump you up to an unsecured credit card with a reward program and higher credit limit.
Not to mention, while using this card responsibly, Capital One will report to all 3 major credit bureaus, which is likely to improve your credit score.
4. “Second chance” checking accounts
One final alternative to a traditional checking account is a second chance checking account. These accounts include most of the same features as regular checking accounts – checks, ATM access, online bill pay, debit cards, money transfers, and direct deposit.
The main difference is that these accounts often come with higher annual/monthly maintenance fees or require a larger opening deposit. Basically, these accounts are set up to give consumers a “second chance” while protecting the bank from losing too much money.
Some banks that offer second chance checking accounts don’t even check your ChexSystems file. Others will require that any outstanding balances from old banks (reported in your ChexSystems file) be paid off before you can get a second chance account.
A second chance checking account can be a good way to establish a better bank account history, and can often lead you into a lower-fee, traditional checking account within a few months to a year.