If you’re formalizing your business, there are a few tasks you’ll need to check off your list, and one of them is opening a bank account in the name of that business. In addition to increasing legitimacy, it will also enable you to separate your personal finances from those associated with your business – a smart idea for business owners.
As you consider opening a business account, you may be wondering what assets you’ll need or requirements you’ll have to meet, and as such, you may be questioning the relationship between a business banking account and your credit.
Do you need to have a good credit score (personal or business) to open a bank account like a business checking account? And if you do open one, will it negatively impact your existing credit score?
Business Bank Account & Credit Checks
Before we answer the first question, let’s get the second one out of the way. If you’re worrying that your credit score will suffer because of your savvy business decision, then the answer is no – it’s not likely. For the most part, banks, including top financial institutes like Bank of America, Chase, and Wells Fargo, only run a soft inquiry, meaning your credit is not impacted.
This is refreshing for those who have thin credit or those who have blemished on their accounts that, in many other financial situations, could cause problems.
That said, even though you’re free and clear of blemishes due to credit checks, there is another consideration to keep in mind, and that consideration can help us answer the first question – do you need good credit?
ChexSystems & Your Banking History
In a traditional sense, your credit score isn’t a determining factor when it comes to opening a business bank account. If you were opening a credit card or seeking a loan or line of credit, then that would be a different story. However, some banks, including those mentioned above, do consult a reporting agency, namely ChexSystems, which gathers information about banking customers, typically risky ones.
Maybe you have a history of overdraft fees or perhaps you’ve bounced a few checks, either way, your bank may have reported that information to ChexSystems, which created a file in your name or your business’s name. If that’s the case, and if the bank you choose to work with consults ChexSystems before proceeding with your account request, then you may be denied.
If you are denied, your first step should be to request a free ChexSystems report (via their website or by phone), which will help you determine why you were denied. If there is faulty information on your report, you can dispute the errors. If the report is factual, you’ll need to work with either the bank or collection agencies (depending on who is handling the outstanding debt) to remedy the situation. Once you’ve done so, you can request that your report be cleared of the infraction.
If you need an account quickly, or if you are unable to remedy the situation, then you do have options, though you’ll need to do some research. Though the majority of banks in the U.S. do utilize ChexSystems, there are a few that don’t. You can contact the bank of interest directly to inquire or you can search online for banks that do not use ChexSystems (be sure to check the date of publication to make sure any list is up to date).
You also can consider a bank that offers “second chance” checking accounts like, BBVA Compass. These accounts are designed to allow account holders to rehabilitate their banking reputation, though you should still attempt settle existing outstanding debts.
If you’re thinking about opening a business account but you’re worried about your credit, keep in mind that a business account, unlike a credit card or line of credit, does not typically require a hard credit inquiry, meaning your credit is spared. Of course, the best way to find out more about requirements and any type of credit inquiries is to contact your bank of choice and speak to an account representative.