Alternative Banking: What to Do If You’ve Been Denied a Checking Account

Daniel Penzing
Written by
Last update:

Having trouble opening an account at a traditional bank? Check out these alternatives.

While it may come as a surprise that the banking industry even has alternatives, that’s exactly what you meaning of the term “ alternative banking.” Needing an alternative banking option happens more often than you might think; here are some common reasons why.

You’re Active Duty Military

If you’re currently active duty or you’re a veteran, finding a bank to suit your needs can be difficult. Traditional banks can require a lot of documentation, including a social security number, which is an issue for military members or veterans who are unable to get a social security card. The Office of the Comptroller of the Currency (OCC) has set up the Operation Choke Point to combat processing limitations for active and former military members, but it’s still an issue that many military members face.

You Don’t Have Good Credit History

If you have a subpar credit score, it may be difficult to open an account. Banks generally will not allow you to make your credit score any worse, so they’ll turn you down. If you’re interested in several banks, it’s important to find out what credit score they require before you approach the bank.

Use ChexSystems to Understand What Happened

If you’ve been denied a checking account, it is likely because you have a lot of outstanding debt. The first thing you should do is check your credit report with ChexSystems. ChexSystems is a database used by banks to access your banking history.

Once a bank has searched through your ChexSystems report, it uses this information to make a decision about whether to approve your account or not. If a bank sees that you have a lot of unpaid debt, it is unlikely that it will approve you for a new account. This is also known as “debit privilege review.”

When you query your ChexSystems file, you are actually requesting your bank and credit bureau files that banks and creditors use. This allows you to see exactly what information they have about you.

You will only have access to information about you if you are legally an adult and if you are authorized on an existing account. This means that you will only be able to view your ChexSystems file if you’ve ever had a checking, savings, loan, or other account.

Find a Second-chance Checking Account

If you’ve tried to open a new checking account and were denied because of poor credit, you might start to feel like you’re beyond help. Fortunately, there are checking accounts for people with bad credit that will allow you to build up your credit while still getting what you need for everyday banking.

One of the most popular as well as the most well-known bad-credit banks is Capital One 360. Capital One 360 has a number of banking options for people who have been denied credit.

Capital One offers both a prepaid banking card as well as a checking account with no overdraft fees.

You can also apply through a third-party bank. There are a number of banks that offer checking accounts specifically for people who have been turned down elsewhere, including HSBC Personal Checking and Capital One 360 Checking.

Another great option for finding a checking account for people with bad credit is to ask a family member or a good friend who has a checking account for a referral. The best way to find a checking account is to get personal recommendations from someone who has had a positive experience with the institution.

These are great ways to find a checking account after you’ve been turned down elsewhere.

Find a Bank That Doesn't Use One of the Reporting Agencies

Large banks are generally less willing to work with bad credit applicants because the potential risk is higher.

As Professor Adrian Litfin, of the Tuck School of Business, wrote to CNNMoney;.

"[Small banks] are ‘going to be more comfortable with someone with a 700 [credit score] rather than someone with a 400 [-credit score],' says Litfin. 'It’s like saying, ‘I’ll give you a loan, but you’re going to have a higher interest rate.'

And since they monitor your checking account much more closely, they will realize and document if you’re not using it anymore."

We’ve found that small banks are more willing to open accounts for people who have bad credit scores.

A good place to start is by looking for banks that don’t use Chexsystems.

This is the largest of the three bad check databases and is used by all of the major banks.

A lot of smaller banks, though, don't rely on ChexSystems to find out if you're a good candidate for a bank account, or to determine if you deserve a second chance. With these banks, you're more likely to get an account approved with bad credit.

Use an Online Bank as your Banking Alternative

The number of people developing a problem with their current bank continues to rise, but instead of moving to a new bank they choose to find alternatives to banking. With the economy such as it is people are finding it harder to open traditional bank accounts.

Just because you don’t have a sufficient banking history doesn’t mean you have to stay with your bank. Instead of walking into a bank and expecting to open an account, which may or may not happen you can use an alternative bank which is more likely to work with you.

These banks are online only and provide some of the same services regular banks offer but without the snotty attitude. If you ever find yourself in a situation where your bank has denied your request for an account you can always turn to an alternative bank to find the service which fits your needs.

Alternatives to banking include:

Find somewhere to park your money

Since finding somewhere to park your money can be the hardest part of any banking issue you may feel stuck. The not so fun thing about banking is that many people don’t think about it until they have a problem with the bank but when they do they don’t know where to go.

What do You Need to Open an Account?

Almost all new banks now ask for basic financial information about you before they will let you open an account.

You may be asked to fill out a form with your name, address, phone number, social security number, and other personal information. You may also be asked for a photo ID like a driver’s license to prove that you are the correct person.

The next step is to provide your income information, which also depends on which bank you go to. Some banks ask you for your recent paycheck stubs, which should prove you have a consistent income. Other banks will ask you for your tax returns, which are more comprehensive and include all of your income for the past year.

Use Prepaid Debit Cards as a Banking Alternative

If you’re unable to open a new checking account, become a member of a credit union or bank that offers prepaid debit cards.

There Are Plenty of Alternative Banking Options out There

If you’ve been denied for a checking account, don’t be discouraged. There’s always another option (and there’s “ª).

Credit unions, or һ, are not-for-profit financial institutions that are member-owned and typically charge lower interest rates than banks. һ can offer everything from savings and checks accounts to credit cards, interest checking, and mortgages.

What’s more, most “ª offer a comprehensive variety of services related to budgeting and debt problems, as well as credit counseling.

Most “ª demand little to no paperwork, so if you’ve been denied by a bank, definitely check out “ª. In fact, some don’t even require you to open your account with an initial minimum amount.