Anyone can open a bank account, right? Wrong.
Even if you have more than enough cash to meet the minimum deposit requirement, you may have trouble opening an account if you’ve mishandled accounts in the past. And depending on the severity of your mistakes, your credit score can take a hit.
Does opening or closing an account affect your credit score?
It all depends on which bank you with. Most banks don’t do a hard pull on your credit report and won’t ding your credit score. However, some banks, such as Chase, BBVA Compass and BB&T have been known to do so and could cause you to lose a few points when opening an account. However, most banks use Chex Systems, Telecheck or Early Warning Services (EWS) to view your banking history and evaluate your application.
Typically, banks do not report activity on checking account to the credit bureaus. Closing an account that’s in good standing will not affect your credit score. But if the account was closed by the issuer because it was overdrawn for an extended period of time, this could mean bad news for your credit.
Is it bad to overdraw your bank account?
Say you forgot to make a deposit and a check bounced. Don’t panic. Instead, make the deposit right away and call the bank to let them know what happened and what you have done to remedy the situation. They may reverse the fee.
But what if you can’t make the deposit or pay the overdraft fees right away? If the account is overdrawn for more than a month, it could be closed and turned over to a collection agency. (Some banks give you a longer period, up to three months, to make things right.) This turnover puts your credit score at risk if you don’t work out an arrangement with the collection agency or pay the amount owed to the bank within 30 days. Otherwise, the account could be reported to the credit bureaus as an unpaid collection item.
How to prevent damage credit damage
You can try to avoid the negative effect of an overdrawn bank checking or savings account by asking the collection agency to remove the negative mark in exchange for full payment or a pre-negotiated amount. Just be sure to get the pay-to-delete agreement in writing. You can also try chatting with the bank to see whether they’ll remove the balance from collections to soften the blow on your credit score.
What to do if you’ve been “blacklisted” by banks
File a dispute
If you believe your application for a bank checking or savings account has been denied in error, retrieve a copy of your Chex Systems report and review it. Dispute any inaccuracies right away by completing the online form.
Some credit unions and community banks offer second-chance checking accounts to consumers that are looking to rebuild their banking history. These accounts are generally more restricted and come with a monthly maintenance fee. (SM banking CTA)
Prepaid debit card
There are several prepaid debit cards that offer many of the same features that consumers with bank accounts receive, including direct deposit, ATM access and online account management.
Still no luck? Consider hiring a credit repair company, such as Lexington Law, to help restore your credit score. Use SuperMoney’s review and comparison tool to explore credit repair companies that may be able to assist.
Allison Martin is an accomplished finance writer who has written for publications including The Wall Street Journal, MoneyTalksNews, The Simple Dollar, and Credit.com. Her work has been featured on Fox Business, Yahoo! Finance, MSN Money, and ABC News. She enjoys writing about personal development, entrepreneurship, personal finance and is a Certified Financial Education Instructor (CFEI).