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Trying to do life without a bank account is tough. You’ll need one if you want to direct deposit your pay or pay bills automatically. If you owe money to another bank, It can stop you from opening a new account.
Opening a bank account doesn’t hit your credit, but you can still be denied a personal checking account or savings account based on your history with other banks. Although it’s best to pay off what you owe to your previous bank, it doesn’t mean you don’t have options in the meantime.
What Are Your Options If You Owe Another Bank Money?
If you owe money to another bank due to unpaid NSF fees or overdrafts, you likely won’t be approved to open a checking account with other banks anytime soon because they all talk to each other.
Most banks and credit unions use ChexSystems or Early Warning Services (EWS) to communicate how risky each new account opening is. This means your negative history with other banks follows you. So you may not have a ton of options, but you still have some options.
Pay Off Your Debt
Your first and best option is to pay off your debt with the previous bank. This probably isn’t the most attractive option if you owe a large negative account balance. Even if you don’t pay the entire amount owed in one go, you can ask to arrange a payment plan with the bank.
Once the full balance is paid, the bank reports that to ChexSystems or EWS as settled. Most times you can open a new bank account straight away. If not, you may need to open a second chance account instead.
Use a Cosigner
If you can’t open a checking or savings account on your own, you could get a cosigner to help you open a bank account. It’s important to be careful with this one for a few reasons.
- Anyone listed as an account holder has full access to the funds and transaction history.
- Most checking accounts can’t remove the cosigner from the account without closing the account and opening a new one. So you’re stuck with them.
- If you overdraft the account with a cosigner, it affects their ChexSystems report too. This could prevent them from opening accounts in the future.
Only use this option when you’re fully ready and capable of managing your accounts. This could mean taking a financial literacy course, changing your money habits, and taking other steps to keep yourself out of similar situations.
As with any cosigner arrangement, you should only work with someone you trust. Having a cosigner on your account gives them full access to any money that’s there. And if something goes wrong, it affects them and their banking history.
Second Chance Account
Second chance checking accounts are a type of bank account that doesn’t check ChexSystems or is willing to overlook past banking mistakes.
You can still set up a direct deposit, make purchases, use online banking, and use it to pay bills. However, the idea behind it is to let you demonstrate that you can manage your finances.
How ChexSystems Works
ChexSystems is a bank reporting system that financial institutions use to document consumer banking history. Any negative information compiled under your profile stays on it for five years.
In that way, it’s similar to your personal credit report, but there’s no credit score associated with it. Instead, they assign a consumer risk score that ranges from 100 to 899. Like your credit score, the higher the number is, the better.
If you’ve been denied a checking account, your bank is required to give the reason why.
ChexSystems will give details on what banking accounts have been reported and why. You just have to contact them by phone at 800-428-9623 to find out. These reasons might include:
- Fraud or Identity theft
- Unpaid banking account balances
- Bounced checks and overdrafts
- Debit Card/ ATM abuse
- Excessive loss of debit cards or checks
- Excessive new account applications
Get your free consumer report from them, then review the information and verify it’s correct. If it’s not, there’s a way to dispute incorrect information on the ChexSystems website. Their dispute process takes up to 30 days to complete an investigation.
Can The Bank Take Legal Action Against You?
The first step banks take in collecting the money you owe is sending your account to collections. A debt collector will attempt to contact you to get the funds back.
Having an account in collections does serious damage to your credit score and stays on your credit report for the next seven years. By paying it off as soon as possible, you might be able to avoid collections and avoid seeing your credit score dip into bad credit territory.
What if sending your account to collections doesn’t work? Then banking institutions use other legal action to get the funds back, such as suing you or garnishing your wages.
Bank Accounts That Don’t Use ChexSystems
Chime is an online financial technology company (not a bank) that offers both checking accounts and credit building options. Their personal checking account comes with excellent customer reviews and features such as:
- No monthly fees
- 60,000+ in-network ATMs
- Fee-free overdraft up to $200
- No minimum balance requirement
- Direct deposit two days early
SoFi is an online banking solution that comes with your normal checking account basics and boasts a ton of extra features, including:
- No overdraft fees
- No monthly fees
- 1.5% APY with direct deposit
- Get direct deposits two days early
US Bank is a national banking institution that offers fully online account opening. Their Easy Checking has a low monthly fee of $6.95 that can be waived by meeting one of the following:
- Monthly direct deposit of $1000 or more
- 65 years or older
- Average account balance of $1500 or more
They offer all of the basics, such as online banking, direct deposit, debit card, and overdraft protection when linked to a savings account.
Overall, opening a bank account while you still owe another bank money is difficult, but still possible. To avoid a hit to your credit report, it’s best to pay off the other bank as soon as you can.
Working with a different bank, or opting for a second chance account could get you the account you need. If all else fails, you may need to ask for help from a cosigner.
- Banks That Don’t Use ChexSystems
- Free Online Checking Account: No Opening Deposit, No Credit Check
- Disputing ChexSystems
- ChexSystems Removal: A Step-by-Step Guide
- How to Get Your ChexSystems Report Online
- 12 Second Chance Bank Accounts
- Best Banks for Real Estate Investors
Seychelle is a Maryland-based personal finance writer and business owner. She’s passionate about helping others out of financial pitfalls she’s already dug herself out of. Most of her finance knowledge stems from her career as a Financial Consultant and Branch Manager at the 7th largest US bank. Read more of her work on credit, budgeting, debt consolidation, and entrepreneurship at www.seychellewrites.com