Do Banks Check Your Credit Score When Opening a Checking Account?
Understand how banks evaluate checking account applicants. Learn the key factors that influence approval, often beyond your credit score.
A checking account is a primary financial tool for daily money management, providing secure funds and easy transactions. Available from traditional banks, online banks, and credit unions, they are used for bills, purchases, and direct deposits. Unlike savings accounts, checking accounts are for frequent use.
How Banks Assess Checking Account Applicants
When applying for a checking account, banks generally do not perform a traditional credit score check like a FICO or VantageScore inquiry. Instead, they primarily review an applicant’s banking history.
If a credit check occurs, it’s typically a “soft inquiry,” which does not negatively impact your credit score. Soft inquiries are for informational purposes, like pre-approvals. Conversely, a “hard inquiry” occurs when applying for new credit, such as a loan or credit card, and can temporarily lower your score.
For basic checking accounts, banks focus on identity verification and fraud prevention, which a soft inquiry can help facilitate. Some financial institutions might conduct a more thorough credit review if the checking account includes features like overdraft protection or a linked line of credit, which involve extending credit. This differs from basic checking account processes.
Understanding Banking History Reports
While traditional credit scores are less relevant, banking history reports play a significant role in opening a checking account.
ChexSystems is the primary consumer reporting agency financial institutions use to assess past banking behavior. It tracks irregularities like account closures due to negative balances, excessive overdrafts, bounced checks, and suspected fraud.
A negative ChexSystems report can significantly affect opening a new checking account, sometimes more than a low credit score. ChexSystems operates under the Fair Credit Reporting Act, similar to credit bureaus, focusing on deposit and debit history rather than bill payment timeliness.
Information on closed accounts typically remains on a ChexSystems report for up to five years. Individuals are entitled to one free ChexSystems report copy every 12 months, available online, by mail, or phone. Another similar reporting agency is Early Warning Services, which collects banking activity information to help financial institutions detect fraud and assess risk.
Options for Opening Accounts
For individuals facing challenges opening a standard checking account due to past banking issues, several alternatives exist.
Many banks and credit unions offer “second-chance checking accounts” to help individuals re-establish a positive banking history. These accounts often have monthly maintenance fees ($5-$12) and limited services, such as restricted check-writing or no overdraft protection.
Their goal is to allow customers to demonstrate responsible financial management, potentially leading to an upgrade to a standard account after six months to a year of good behavior.
Prepaid debit cards offer another alternative, functioning like checking accounts for managing money without a credit check or banking history report. These cards allow users to load funds, make purchases, pay bills, and receive direct deposits, though not linked to a traditional bank account.
While convenient, prepaid debit cards can carry various fees, including monthly or reload charges. Individuals should inquire directly with financial institutions about account requirements and explore options at credit unions, which may offer more flexible criteria.