Denied a checking account? What to do now.
It can be easy to take checking accounts for granted, unless you鈥檙e denied one.
Does your banking history includes lots of bounced checks, unpaid fees or other problems? If so, many banks and credit unions won鈥檛 be eager to have you as a new customer.
But getting turned down shouldn鈥檛 mean having to rely聽on pricey聽check-cashing outlets聽or making all your purchases with cash. You still have affordable options聽鈥� and you could聽put yourself in position to eventually qualify聽for a regular account again. Here鈥檚 how.
Check your ChexSystems report
If a bank or credit union closed your old account because of your mismanagement, you probably have a record with ChexSystems, a company that collects information on risky customers.
Steven Hughes, an entrepreneur in Columbia, South Carolina, says he applied for a checking account a few years ago, and a聽bank told him he couldn鈥檛 open one because of his聽ChexSystems file.
鈥淚 made a lot of financial mistakes when I went to college several years ago,鈥� Hughes says. 鈥淚 bounced checks and had a lot of overdraft fees. The fees became too much for me pay, and my old bank closed the account.鈥�
Hughes contacted ChexSystems and asked聽for聽a copy of his file. Then he reached out to his creditors to聽settle his debts.
Under the Fair Credit Reporting Act, you have a right to聽聽for a free copy of your file if you鈥檙e denied a bank account. You can also request a free copy at least once every 12 months. If there鈥檚 an error, you can dispute the information and ask the company聽to remove it. Otherwise, ChexSystems keeps valid information in your file for five years.
Ask to remove settled debts
If you pay off your outstanding debt earlier than the five-year mark 鈥� and, of course, you should if you can 鈥� the ChexSystems record will be updated to show that you have paid what you owed. The聽negative file doesn鈥檛 automatically disappear, but you or your former creditor could ask ChexSystems聽to delete it.
Hughes says he sent ChexSystems receipts to prove his debt was paid. The negative mark was then removed from his file, well before the five-year timeframe. 鈥淎fter that, I had no problem opening a new bank account,鈥� he says.
Apply for a second-chance checking account
About 20% of banks offer alternative checking accounts, known as聽, for people who don鈥檛 qualify for a standard account, the Federal Deposit Insurance聽Corp. says.
Second-chance accounts usually don鈥檛 have the same perks as standard checking, such as overdraft protection or waivers for聽monthly service charges. The monthly fees generally range from $10 to $15. That鈥檚 not ideal, but it鈥檚 still cheaper than other alternatives, such as using a check-cashing company to deposit paychecks. Those services can cost up to 10% of the value of the check.
The best second-chance checking accounts have no minimum-balance requirements and offer聽聽and online banking for free. And if a year or so goes by without any negative balances or other problems, customers can usually聽upgrade to a better checking account.
Temporarily use a prepaid debit card
If you鈥檙e not able to open even a second-chance account, consider using a reloadable debit card while you work on paying off debt. This type of聽聽lets聽you聽take advantage of some banking functions, such as paying聽bills and transferring money to other people, without the need for a聽.
Customers can also deposit checks into special accounts linked to prepaid cards by using ATMs or mobile banking, sometimes for free. It鈥檚 a good idea to consider the size of聽a card鈥檚 free ATM network to help you avoid out-of-network charges.聽You鈥檒l also want to look for a card that has fraud and purchase protection.
You can order聽prepaid debit cards online, sometimes for no fee, or pay around $5 at local聽retailers. The聽聽don鈥檛 charge聽monthly fees 鈥� or, if they do, the fees are under聽$5 a month. Some card issuers聽will waive the monthly charges if you sign up for聽. You can use a reloadable card now and apply for a checking account in a few months, after your ChexSystems record聽improves.
With these alternatives, there鈥檚 no reason to stay聽鈥渦nbanked鈥� for long. You can use affordable alternatives and start taking steps today to clear your banking record.
Margarette Burnette is a staff writer at NerdWallet, a personal finance website. Email:聽mburnette@nerdwallet.com. Twitter:聽.
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