Credit Checks for Checking Account

I will provide the official information after my comments. Based on what other people say the bank's official position is, most claim they do not check your credit. Among those banks making this claim is Bank of America. Let me tell you, unless they have changed things recently, they lie.

When I first moved to Key West, FL a week after 9/11 I had over five thousand in cash and cashier's checks and Bank of America refused to give me a checking account because my CREDIT SCORE was too low. Several years later when I had gotten a full time job that banked at BofA, I would go there to cash my checks where they would charge me $5.00 to cash a check drawn on their own bank. I then tried to open a savings account (this was now 4 years after the original attempt) so I would be a bank customer and not have to pay $5.00 to cash a check. BofA again refused to even give me a savings account because my credit score was too low. (I had gotten a checking account at a smaller bank shortly after arriving in Key West.)

Opening a Checking Account

Under the requirements of the Patriot Act, all banks must do an identity check on a new customer. They use "customer identification programs" (CIP) that compare your name, address, date of birth, and other facts to the information contained on your credit report. This identity verification process does not count as a hard inquiry and probably isn’t even recorded as a soft inquiry either. Your credit score would not be damaged by that step.

Years later when I opened a business account at BB&T the credit score wasn't mentioned. The same goes for Wachovia, now being absorbed into Wells Fargo.

The CIP regulations require institutions to implement reasonable procedures for:

• Verifying the identity of any person seeking to open an account, to the extent reasonable and practicable

• Maintaining records of the information used to verify the person’s identity, including name, address, and other identifying information

• Determining whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency

Banks will sometimes request credit report data during the process of determining if a customer qualifies to open a new account. This is a separate step from the identity verification and could be recorded as a hard inquiry. Under FCRA regulations, the bank has to have a permissible purpose such as "intend[ing] to use the information in connection with a credit transaction involving the consumer" in order to pull a credit report and must obtain the consumer’s consent first. A hard inquiry like this could cause a small credit score ding, although some people report significant "dings" to their credit score on the order of 50 points. People also report credit checks for Certificates of Deposit and other things that have nothing to do with credit.

The Fair and Accurate Credit Transactions Act, or FACT Act, applies to all national credit and specialty consumer reporting bureaus, including check reporting bureaus. You are entitled to one free report each year from these bureaus. The major check reporting bureaus are ChexSystems, Shared Check Authorization Network, or SCAN, and TeleCheck. ChexSystems and TeleCheck have websites you can find with any search engine, with information on how to obtain your free report. SCAN can only be reached by phone, (800) 262-7771. I suggest that you order a free report from each of the check bureaus.

I should point out that even if you didn't have an account closed because of a bad check, if you wrote a bad check and didn't take care of it, that could well be reported to a check reporting bureau. Albertsons, Radio Shack and Winn Dixie are just a few firms that use these services, from my personal experience from my poor days.

With your reports in hand, the next step is to dispute the negative information listed from the failed bank with each bureau that is reporting it. Send the dispute in writing by certified mail, return receipt requested. Why certified mail? It foils the bureaucrats by forcing a named person to do something. Plus, it gives you the necessary documentation you may need later, to make sure the bureaus follow the rules of the FACT Act.

Once the dispute is received by a bureau, the FACT Act requires that they investigate the disputed information. Within 30 days they must provide written verification to you substantiating the information. In your daughter's case, the bureau would have to get in touch with whatever bank is currently holding the account and request verifying documents. From what your daughter has experienced, it is unlikely the bureau will be able to obtain verification. Without proper verification, the FACT Act requires that a disputed item must be removed from a consumer's report.

If the bureaucrats at the bureau fail to provide you with verification within 30 days, send another written request (again by certified mail, return receipt requested) demanding the item be removed. Include a copy of your receipt from the original dispute letter and explain that you are aware the item must be removed under the FACT Act.

Should you receive communication from the bureau that the information has been miraculously verified, the response should include contact information for the bank that provided the information. Contact (by certified mail, return receipt requested) the new bank and dispute the listing the bank is reporting to the bureau, and request verification from the bank. Again, because the bank you originally opened the account with has closed, it is unlikely the new bank will be able to produce verification. Without it, the item must be removed from your report.

Finally, if all else fails, I have found that you can usually get some help from your state's consumer protection agency. If they aren't listed independently, try the state attorney general's office. When those guys call or write, they get results -- fast!

ALTERNATIVES to Bank Checking Accounts

One alternative is a debit card. WIRED PLASTIC, for instance, actually has a checking account routing number so you can direct deposit your paycheck into it. You don't get checks, but it is a checking account for deposit purposes. There are many other ways to reload the card. This card charges $3.00 a month, assuming you have money in the account.

Of course, not having a real checking account for a business is going to be a problem if you need to accept checks from customers or you need to setup PayPal or other payment accounts.

If you have a personal account, most banks will let you add a fictitious name/DBA to your personal account which will allow you to deposit company checks. That bank would also likely let you set up a business account.

In the case of a corporation, get someone you trust and who has good credit, to accept the position of treasurer. If your credit is bad or you are in ChexSystems, just don't be a signer on the account. You can though get a debit card for the account later, or use the treasurer's card. The company name will also be on it, and in any case, nobody ever looks at the name on your card. Using it as a debit card, nobody else ever gets to touch it.

Finally, there are second chance banks that will open accounts for people with bad credit or who are in ChexSystems. Do a search on the internet for one near you and for internet only banks. Of course, this is not to say, there isn't a local bank in your area that doesn't do credit checks or doesnt even check with ChexSystems or another check company. I would just go apply and see what happens. Banking at a mainstream bank is certainly preferrable to the alternatives.

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