Can Bad Credit Prevent You from Opening a Bank Account?

For many people, opening a checking or savings account at their local bank branch is seen as just another errand to run. You walk in, sign some papers, deposit a bit of cash, and then go on your way. But for people with bad credit, opening a bank account can be a slightly more nerve-wracking experience.

So can a bad credit score prevent a person from opening a bank account? Well, not exactly. It won’t prevent them from opening a bank account in the same manner it prevents them from getting a loan or a credit card. However, the type of behavior that causes bad credit such as overdue bills, missed or late payments, accruing more debt are also the kind of behaviors that will prevent you from opening an account.

Remember what “bad credit” actually means

It can be all too easy for us to use the term “bad credit” without stopping to remember its significance.

If you have “bad” credit, it means that you have a low FICO score somewhere below 630. FICO scores come in a range between 300 and 850. The lower your score means lower creditworthiness (a FICO score of 680-719 is generally considered to be a “good” score, and anything above that is “great”).

Your credit score is determined by the information contained in your credit report. These are documents compiled by the three major credit bureaus: Experian, TransUnion, and Equifax.

A credit report is a record of your credit usage over the past seven years although some info on your report can stick around even longer. There are five factors used in calculating your score:

1. Payment history: 35%
2. Amounts owed: 30%
3. Length of credit history: 15%
4. Credit mix: 10%
5. New credit: 10%

The more poor credit decisions you make such as late payments on bills or excessive increase in credit card balances—the lower your credit score. Lenders may view a low credit score as an indicator of someone who has a history of using credit poorly and therefore a riskier customer probably better suited for a bad credit loan (For more on bad credit loans, check out the TheLending Guide to Bad Credit Loans here).

How bad credit can lead to no bank account

The same is true for banks when you’re opening a checking account. If they see you as too big a risk, they aren’t going to let you open an account. As attorney Carmen Dellutri, founder of Dellutri Law Group, puts it, “Banks don't like to take risks, period."

The only difference is that the bank won’t check your credit score or pull a copy of your credit report from one of the three major bureaus. Instead, they will conduct a bank-specific version of a credit check, using a slightly different system to evaluate your creditworthiness. Rather than look at your history of borrowing money, the bank looks at your history of managing bank accounts.

They will most often run the check through a company called ChexSystems. “If you have made mistakes with banks in the past, you might have been put on the ChexSystems list,” says Dellutri. “Those mistakes could include a closed bank account without paying fees, bad credit, or other banking mistakes.” Additionally, an overdrawn bank account that is never paid up will end up being sent to a collections agency—which will show up on both your normal credit report and your ChexSystems report.

If you have bad credit, it’s highly likely that you’ve overdrawn your checking account or bounced a check or two in the past. The bank running the check will see this in your report from ChexSystems and may deny you an account. So while bad credit won’t directly lead to being denied for a checking or savings account, the behavior that leads to bad credit has a potential to do so.

What to do if you’re denied a bank account.

It can be hard for many people to imagine not having a bank account, yet it’s a hard reality for millions of Americans. A 2021 survey from the Federal Deposit Insurance Corporation (FDIC) estimated that over 18 million households in the US were entirely “unbanked.” Being without a bank account means relying on check cashing stores, which can charge exorbitant fees all so that a person can simply access the hard-earned money in their paycheck.

Finance expert David Bakke defines the underbanked as “people who have a bank account but rely on other methods of financing and payments, such as using money orders or payday loans.” Even if these people currently have a bank account, they often have bad or “thin credit” and are at a greater risk for the closure of their bank accounts they already have.

If you are denied a bank account, the first thing to do is to request a copy of your ChexSystems report. The good news is that you can get a copy for free under federal law, as you are entitled to request one free copy of your ChexSystems report annually (the same holds true for your traditional credit reports). If there are any errors on your report, you should dispute them with ChexSystems. Likewise, if you have any outstanding overdue accounts or collections notices, get them resolved promptly.

Fixing your ChexSystems report is just like fixing your credit score. The best thing you can do is start making responsible financial decisions today. “Pay your bills on time and in full,” says Bakke. “Make sure you never bounce a check again by keeping a little more in your bank account than your register reflects.”

Even with black marks on your report, Dellutri says there’s a type of bank account that you might still qualify for:

“Many banks and credit unions offer 'second chance' banking accounts. These accounts might come with fewer services and higher fees, but they do allow you to open a bank account. Often you can become eligible for a regular account after paying banking fees regularly and establishing a solid reputation with a bank.”

While bad credit might result in a denial for a bank account, it’s not the end of the world. By correcting errors on your ChexSystems report, making better financial decisions, and exploring a second chance account, you may be able to work your way back to a standard bank account.

David Bakke is a finance expert who started his own personal finance blog, YourFinances101, in June of 2009 and published his first book on ways to save more and spend less called ““Don’t Be A Mule…” Since then he has been a regular contributor at Money Crashers.