Banks typically require applicants to undergo background checks before they can set up their accounts.

Generally, a financial institution may screen you to confirm your eligibility, identification, and address.

However, some banks may have special requirements for specific individuals. For example, institutions may prevent former inmates with financial crime records from setting up their bank accounts.

One of the primary aims of this website is to provide you with information regarding financial institutions and how to transact with them.

Continue reading to learn more about background checks and setting up a bank account.

Banks and Background Checks

          Setting up new savings or checking accounts is not as easy as just bringing and depositing some cash to the bank.

Before opening an account with you, banks and credit unions want to learn more about your financial history. Often, these institutions perform this task by investigating your bank history report, which is not the same as a credit check.

When a prior account is “closed for cause,” the bank or credit union understands this as proof that your account’s closure was due to something you did.

Consequently, the institution might decline to partner with you if the investigation reveals that you have a history of mismanaging other bank accounts.

Closed for Cause

Below are a few reasons why a bank account was “closed for cause”:

  • You overdraft your account and did not pay the associated insufficient funds costs.
  • You have a track record of giving business partners poor checks.
  • You have defrauded people.

Credit Checks

         Financial institutions may also look for additional data beyond your bank history before establishing your bank account.

For instance, institutions might check applicants’ credit history, which may help determine whether the applicant has ever filed for bankruptcy or engaged in fraud or identity theft.

Suppose someone writes a lot of checks to pay bills, but the checks often bounce back due to insufficient funds. In that case, there is a good chance those bills will transfer to collection agencies and eventually appear on the applicant’s credit record.

The process of obtaining a checking or savings account typically stops when the bank discovers a terrible credit record.

Consequently, banks can deny an individual’s request with a disclosure that explains why the institution cannot open an account for the applicant.

Some banks offer second chance accounts to individuals with troublesome bank histories. However, these institutions often require customers to participate in a financial management workshop before setting up their accounts.

The good news is that negative data will not stay on a person’s record forever.

Still, it would help if you could verify whether your credit report contains negative items. Before requesting a new account, check your report if you have any doubts.

Typical Requirements for Setting Up a Bank Account

Setting up a bank account is a relatively simple procedure, regardless of whether it is your first or tenth account.

Opening a savings account, checking account, certificate of deposit (CD), money market account, or online-only account has similar criteria. You may have to meet the following requirements to open a bank account:

Eligibility

A bank or credit union usually requires you to be 18 years old to open an account. On the other hand, you need your parent or another adult to open a joint account as a minor.

Moreover, before working with you, banks assess your credit rating and financial background.

For instance, some banks may not allow you to open a new account if you have a history of paying excessive overdraft fees on previous accounts or if a background check reveals fraudulent acts.

In many cases, you also need to be a citizen of the United States to open a bank account in the country.

Identification

The identification process is a crucial step for you and the bank to prevent fraud and other financial issues that usually result from sloppy identification procedures.

Financial institutions must also confirm your identity and claims. Consequently, banks may require you to submit two government-issued identification forms (ID).

Some government IDs include a Social Security card, driver’s license, state ID, passport, or birth certificate.

Proof of Address

Your name and present residence must be on a utility bill or lease to qualify as evidence of address. You may note that many banks do not take P.O. box addresses as legitimate.

Furthermore, banks usually require your email address or phone number.

Minimum Opening Deposit

The bare minimum opening deposit differs between institutions. Checking or savings accounts may have a minimum opening deposit of $25 to $100.

However, some savings accounts do not have any minimum initial balance requirements.

You may use cash deposits, checks, current debit or credit cards, electronic transfers, and cash deposits to fund a new account.

Ensure you maintain the required minimum amount after setting up your account so that you can prevent bounced checks, overdraft fees, fines, and other costs.

Reference

  1. Checklist for opening a bank or credit union account https://files.consumerfinance.gov/f/documents/cfpb_adult-fin-ed_checklist-for-opening-an-account.pdf