You applied for a checking account and your application is rejected. The most likely reason is this: There was negative information about how you manage money provided by either ChexSystems and a credit reporting agency or both. Routinely, financial institutions run your name and Social Security number through those two when evaluating whether to provide you with a checking account. For them, red flags include a record for overdrafts, bounced checks which were not paid back, fraud, bankruptcy, and having checking accounts closed in the past for “cause.”
Thanks to the federal Fair Credit Reporting Act, you can request a free copy of the information both have about you. That can be done annually. If there are errors, you can correct them. If the data are accurate it is unlikely the financial institution will change its decision. That information, even if you pay the checks off and have no further problems, will be reported by ChexSystems for five years. Credit reporting systems usually retain the information for seven years.
Meanwhile, you need a cost-efficient way to deposit funds you receive and payments you have to make. Traditional alternatives, ranging from cash-checking services to money orders, tend to be expensive. Here are some other options:
Talk things over with the financial institution
If your record has been blemish-free for years, you might offer to establish other accounts, ranging from savings to Certificates of Deposit. You could have a checking account linked to the savings to prevent overdrafts and provide funds for any bounced checks. Because you are providing the financial institution with higher-value business (most checking accounts are loss leaders), it might be open to this proposal.
Second chance checking accounts
Some banks offer those with black marks on their ChexSystems and credit reports what is known as a “second chance checking account.” This is not open to those who declared bankruptcy in the past 12 months or have been convicted of fraud. Usually second chance accounts have relatively high monthly fees, require a high minimum daily balance, and may or may not provide a debit card. Some offer overdraft protection for a fee. Some of the costs can be reduced or waived if the account is linked to some other kind of account such as savings. If there are no problems, the financial institution could eventually grant a regular checking account.
Prepaid debit card
Because funds are loaded onto the card before there are financial transactions, those with negative ChexSystems and credit reports can obtain them. Those with fraud records cannot, however. Newer cards have lower monthly fees than the older versions. They alsofrequently provide checks for payments. That is in addition to the ability of the debit card to be used at ATMs, in brick-and-mortar retail, and even for online purchases and renting cars. Since this is a growing field in financial services, it is necessary to comparison shop for the best deal.
Clearly there are dire and long-lasting consequences for overdrafts and bounced checks. Therefore, it is wise to put in-place the mechanisms such as paying fees for overdraft protection or linking accounts to prevent those.