A bank account makes it easier to organize finances, usually comes with a debit card, and keeps your money insured by the FDIC. However, not everyone is eligible to open a bank account. If you have any difficulty with opening a new account, it’s important to know why that’s the case. Knowing why a bank or credit union doesn’t want to open an account for you can help you get in good standing and end up with a bank account in the future.
Common Reasons for Being Unable to Open a Bank Account
There are several reasons why people aren’t able to open a savings or checking account. These are some of the most common roadblocks.
Identification Issues
Banks have to verify who you are before you can open an account. These are some of the issues that can show up.
Insufficient Documentation
You may have to provide additional documentation to verify your identity. In most cases, you need a government-issued photo ID, a Social Security number, and an address. You may have to provide additional information during the application process.
Expired Identification
You may have to get a new ID before applying for a bank account. If it’s expired, you can’t use it for a bank account application.
Name Mismatches
If your ID doesn’t match the name you provide to a bank, you may have to start the application over. This can happen if you use a nickname instead of the name on your ID.
Poor Credit History
A poor credit history can impact your access to banking and other financial products. Here’s what you should know.
Effects of Low Credit Score
Banks and creditors will review your credit report before giving you access to a financial product. A low credit score will make creditors and bankers perceive you as a higher-risk consumer. Financial institutions make money when people use their products and pay back their credit card debt. Not only will you have fewer bank account options if you have bad credit, but a low FICO score can also result in higher interest rates on loans.
History of Bankruptcies
Bankruptcies make it more difficult to open new bank accounts and borrow money. They demonstrate that a consumer has a difficult time keeping up with debt. You may have to get started with a second chance bank account or demonstrate that your bankruptcy took place due to unforeseen circumstances, such as rising medical bills.
Outstanding Debts
A substantial amount of debt will discourage banks and creditors from working with you. They want to make sure you can keep up with your current obligations and any expenses they may have for you.
Previous Bank Account Mismanagement
Any previous mistakes in your banking history will go against you. At the same time, it’s possible to open a new bank account even if there’s a blemish; a bad banking history will make it more difficult to open a new account.
Overdrafts and Unpaid Fees
No one’s perfect. People are bound to incur overdrafts and fees from time to time. However, if these fees become common and you leave them unpaid, banks won’t feel as inclined to work with you in the future. Reviewing your account statements can reveal how you spend money and minimize the likelihood of overdrafts in the future. You may also discover that you are paying a recurring subscription for a product or service that you no longer use.
Fraudulent Activities
Any fraudulent activities are going to discourage banks from working with consumers. Some second-chance banks may work with these consumers to help them establish their banking history.
Account Closures by Banks
Banks typically close your account if you have an overdrawn account and haven’t fixed the negative balance for several months. That doesn’t send a good sign to banks who may want to work with you.
Minimum Deposit Requirements
Some banks have minimum deposit requirements that you must fulfill before you can open an account. These are the details.
Understanding Minimum Balances
Banks have minimum balance requirements that require you to deposit some money into a new account. Fulfilling this requirement is critical to opening an account. Once you make the minimum deposit, you may also have to fulfill a minimum balance requirement to avoid a monthly maintenance fee.
Variations Among Banks
Some banks have $100 minimum deposit requirements, while others do not have them at all. A few banks may require that you have $500-$1,000 ready to go before you can open an account, but that is rare for personal bank accounts.
Alternatives for Low Deposit Accounts
You can find several bank accounts that do not require a minimum deposit. That way, you can deposit and accumulate money at your own pace.
Legal and Residency Issues
You’ll also have to consider legal and residency details that can impact your ability to open a bank account. These are the details.
Non-residency Status
Some U.S. banks only work with customers who are U.S. residents. However, you’ll find banks that let you open accounts even if you are not a U.S. citizen.
Legal Age Requirements
You must be at least 18 years old to open a bank account. Some accounts are available for teens if guardians assist with opening the accounts.
Regulatory Restrictions
Some regulatory restrictions can interrupt your ability to open a bank account. Banks must fulfill regulatory requirements when reviewing applications, such as reviewing an applicant’s ID.
How to Resolve Issues and Open a Bank Account
It’s possible to resolve an issue with a financial institution and end up with a bank account. These are some of the steps that you can take.
Improving Your Credit Score
Raising your credit score will make it easier to open a bank account, and you’ll get easier access to loans and lines of credit at more favorable rates. Paying bills on time and paying off your debt are the two best ways to improve your score. That’s because 35% of your FICO score consists of payment history, and credit utilization makes up another 30% of your FICO score. You should also avoid applying for new credit and triggering hard credit inquiries while trying to improve your score.
Gathering Proper Identification
Make sure you have the necessary identification documents for a smooth process. You can check with your bank to determine what you need to get started.
Resolving Previous Account Issues
Most account issues stem from unpaid fees and overdrafts. You can resolve those issues by paying off your overdrawn balance and making sure that you don’t incur overdraft fees in the future.
Exploring Different Banks and Account Types
You don’t have to commit to one bank or one type of account. Some banks have more generous requirements, especially if you venture to online banking platforms. Furthermore, you can consider multiple account types, such as checking and savings accounts. Consumers may also benefit from second-chance bank accounts if they are unable to open traditional accounts.
FAQs About Opening a Bank Account
Yes. It is possible to open a bank account if you are not working.
If your application for a bank account is denied, you can ask why your application got rejected and then take steps to improve your financial situation. You can also consider a second-chance bank account to establish a good banking history.
