If you’re curious about whether banks conduct a credit check when you open a checking account, the response is maybe? Some banks will run a credit check to open accounts but many do not.
According to the Office of the Comptroller of the Currency, under the Fair Credit Reporting Act, a bank can obtain a consumer report if it has a “permissible purpose,” which may include opening a deposit or savings account.
However, most banks in the United States use ChexSystems to screen potential customers.
Do banks pull credit reports to open accounts?
As discussed above, some banks may run a credit check to open new accounts.
Soft Credit Checks
If a bank pulls your credit, it will likely be a soft inquiry on your credit to check for a history of fraud and to verify your identity. Banks are required by law to verify the identity of new account holders, and credit reports can be used for this purpose as well. Soft credit checks do not impact credit scores.
Hard Credit Checks
If a customer requests some type of loan, the bank will run a hard credit check. Hard credit checks will lower your score for a period of 12 months by as much as 10 points but hard credit checks drop off of your credit report after 24 months.
Overdraft protection functions as a loan option from your bank account. In the event that you withdraw more funds than what is available, the bank or credit union steps in temporarily to cover the shortage until your account balance is replenished. It’s important to note that this service often comes with an overdraft fee.
Given that overdraft protection is essentially a type of loan, many financial institutions conduct a credit check when you opt for this service. It’s always a good idea to check your credit report for free prior to applying for any type of loan or credit product.
Most banks use ChexSystems to open bank accounts
ChexSystems is the most popular reporting agency used by over 80% of banks in the United States. ChexSystems is specific to your banking history only. It does not include credit transactions.
Your ChexSystems report will contain information like a history of overdrafts, negative balances, and bounced checks, as well as any instances of fraud, security freezes, and other items specifically to do with your banking history.
Other banking history consumer agencies
When you apply for a checking or savings account banks look into your financial history. The most common consumer reporting agency is ChexSystems but there are others.
Early Warning Services (EWS)
Early Warning Services (EWS) provides fraud prevention and risk management solutions to financial institutions and is primarily focused on identity verification, account verification, and fraud detection services. It maintains a comprehensive database that combines data from various sources, including participating banks, credit unions, and financial institutions.
TeleCheck is a consumer reporting agency that provides electronic check acceptance and verification services to businesses and merchants. Telecheck helps merchants accept and process checks more efficiently while minimizing the risk of accepting fraudulent or insufficient funds checks.
However, some credit unions utilize Telecheck to make more informed decisions about opening accounts for new customers and minimize the chances of financial losses.
What to Do If You Are Denied a Checking Account
ChexSystems, EWS and Telecheck are similar to the credit bureaus, except that consumers files at these consumer reporting agencies only contain negative information; there’s nothing positive to present your banking history in a balanced manner. Negative banking information may result in being denied a bank account. But this doesn’t mean you have to live without banking services; you have a few options:
1. Find Out Why You Were Denied
Order your ChexSystems, EWS, Telecheck or credit report to see what information is being reported about your banking history. Or, you may have received an Adverse Action Notice or Disclosure Notice explaining why you were denied opening an account.
2. Resolve the Issue
- Promptly repay any outstanding debt you owe to a bank or credit union.
- Make sure you get in writing from the bank that the item has been paid.
- If the account has been reported to ChexSystems you want the account updated in ChexSystems to paid in full.
- Consider asking the bank for a deletion in exchange for payment. If you take this route, make sure you request the pay for delete prior to sending in payment and get all negotiations in writing.
- In the event that you notice incorrect information on your ChexSystems report, it is advisable to reach out to the bank or credit union responsible for reporting the inaccurate data.
- By contacting them directly, you can work towards resolving the issue to your satisfaction. However, if your concern remains unresolved, you have the option to dispute the information directly with ChexSystems.
3. Consider a Second Chance Checking Account
If you’ve been denied a checking account due to something on your ChexSystems report, resolving the issue may require some time and effort. However, it’s important to have an alternative means to conduct your banking transactions in the meantime.
One option is to explore a second chance banking accounts available in all states. These types of accounts are specifically designed for individuals who have been denied traditional checking accounts.
Second chance checking accounts near you typically offer similar features as regular checking accounts but may have monthly service fees, require a larger opening deposit or have limited check writing privileges. With second chance banking you can enjoy the convenience of everyday banking activities while working towards resolving any issues with ChexSystems.
4. Consider Banks that don’t use ChexSystems
There are several banks and credit unions that offer checking accounts without relying on ChexSystems or have more lenient requirements. These options may vary depending on your location; however, there are online banks that don’t use ChexSystems available in 50 states.
Read more about free checking accounts