Everyone needs to have a bank account. The problem is that many people have bad credit, which can make opening a new bank account or checking account very difficult. This is due to the fact that many (if not most) large financial institutions will turn account applicants down for having bad credit. Additionally, some traditional banks will also deny new account openings (or being added to an existing account!), because of unpaid overdraft fees, a history of late or missed payments, or bank account closures.
Even so, never fear! Lots of people can still get access to open a new checking account — even with poor credit. Regardless of whether you’re concerned about approval odds or if you have already been shown the door by a local bank or credit union, there are tons of “second chance” bank account options for individuals with low credit or negative banking history.
In order to help you get a sense of what you need to do next, it’s helpful to have a big picture understanding of what financial institutions consider as they evaluate applicants’ credit score and history with banks.
What Do Banks Consider “Bad Credit”? And Why?
You may already know that credit card companies like Visa, MasterCard, Discover, or American Express (Amex) consider credit history when deciding whether to approve new cardholders.
Similarly, banks do the same thing. They want to know any relevant financial information that could help to determine whether a new client is worth the risk and investment of their time and resources.
Whether it’s for a checking account or savings account, banks want to know a little bit about you before deciding to do business with you for the long haul.
Do Banks Run a “Hard” Credit Check or a “Soft” Credit Check?
The answer to this particular question will depend in large part on the bank in question. Some banks may run a hard credit inquiry, while others perform a soft credit inquiry. If it’s not clear which one they’ll be running on you, then simply ask the bank teller or employee to clarify for you.
One thing to be aware of: Some banks will run a hard credit check. If you have recently applied for several new loans, then this could be something you want to avoid.
That being said, financial institutions like banks use the major credit bureaus to run credit history checks:
Based on the information they receive from their selected credit bureau(s), they will make a decision on your credit worthiness and whether to offer you a new checking or savings account with them.
Ultimately, your credit score is based on a number of different factors, such as credit card and loan repayment history, the age of your credit lines, how much of your credit you’re using (typically called “credit utilization”), the timeliness of your payments, and any missed payments on your report.
What Is a ChexSystems Report?
Banks often collaborate with companies and agencies outside the typical credit bureaus. They do this in order to get a broader, more complete picture of an individual applicant’s banking behavior.
One of the main systems they use is called ChexSystems. This agency utilizes a social security number to pull up someone’s financial and banking history.
What does ChexSystems do? Specifically, it has the ability to view the following:
- Writing bad checks
- Checking account overdrafts and fees
- Banking account freezes
- And other negative financial factors
ChexSystems will then provide the information they find to banking institutions.
What’s more, banks can check for a number of other “negative” banking practices:
- Unpaid negative balances
- Excessive account withdrawals
- Even check fraud
The problem arises for many people when banks reject their account application based on this banking activity information.
What to Do If You Get Rejected for a Checking Account
First of all, know that you are not alone. Getting rejected for a new checking account can feel really awful. That’s a fact. But you are not the first person to have this happen. And you will not be the last.
Second, there is hope! You have several options if this happens to you.
- You can attempt to get your prior negative banking activity corrected. In other words, you can pay your overdraft fees or fix any other outstanding issues.
- Formally request a reconsideration of your checking account application. You will receive an official notice in your mail (in your physical mailbox, not email) explaining the issue. Once you know what the problem is, you can present your case to the bank.
- Seek out a different bank altogether — one that will not check your previous bank activity before approving your application.
The third option is the one we’ll explore in more detail below. These accounts are called second chance bank accounts.
What Is a Second Chance Banking Account?
Anybody trying to rebuild their credit or finances after a bad credit situation or negative banking history can seem to face an uphill battle. Thankfully, second chance banks offer people a chance to open a brand new checking account to get back on the right track and rebuild positive banking history from day one.
What is a second chance checking account? Second chance banking accounts work exactly like “normal” checking accounts, only with a few less overall services and some stipulations/limitations. For example, many second chance checking accounts have the following features:
- Monthly fees (without an option to be waived)
- More requirements than “regular” banking accounts
- Many require regular direct deposits
- Some require a higher minimum checking account or savings account balance
- May not have the ability to write checks
- Enrollment overdraft protection programs may be required OR non-existent
One thing to keep in mind about second chance checking accounts: they can very much help people to improve their banking history, BUT they do NOT usually help to rebuild credit (although some new, special, online-only accounts do have this option).
If rebuilding your credit history is the primary concern, then look into getting a secured credit card. These are a very simple and easy way to get approved for a credit card and rebuild your credit score. Plus, there’s very little risk involved on either side (for you or the financial institution).
7 Best Second Chance Checking Accounts in 2021
A number of the bigger banks in the United States will allow people to open a second chance checking account with negative banking account history. Even so, a lot these have an assortment of non-negotiable fees which are very important to keep in mind when you look at all your account options.
The highest quality second chance checking accounts will come with some or all of the following features:
- No monthly fees (or very low fees)
- No minimum balance for checking or savings accounts
- Services such as debit card access
- Online bill pay
- Check writing capabilities (limited or unlimited)
- Very few daily and/or monthly max. transaction dollar amounts
To find all this out, you’d need to spend hours scrolling and clicking through dozens of different websites.
To make it easier, we’ve put together a current list of the best second chance bank accounts, along with their fees and requirements. Plus, you can view some of the features you can expect to receive from each one. Finally, watch the videos below each option to learn more before you make a decision.
- Monthly fee: $0
- Minimum balance: $0
- Overdraft fee: $0
- Feature: No credit check or ChexSystems review; 32,000+ free ATMs
- Note: Chime also offers no foreign transaction fees.
- Monthly fee: $8.95 (potentially waived)
- Overdraft fee: $0
- Feature: Get direct deposit up to 2 days early
- Note: Also available at Wal-Mart
- Monthly fee: $0
- Overdraft fee: $0
- Feature: 55,000 free ATMs across the country
- Note: We have personally used this one. It’s a great account for simple needs. Transfers were very slow, however, and there are no physical branches.
- Monthly fee: $9
- Overdraft fee: $5
- Feature: May be able to upgrade to Rewards Checking after 1 year
- Monthly fee:
- Overdraft fee:
- Note: Only available in 39 states & Washington, D.C.
- Monthly fee: $0
- Overdraft fee: $0 (for up to $50 in charges AFTER setting up direct deposits)
- Feature: Over 55,000+ free ATMs around the world; beautifully designed mobile app.
- Note: We have also used this one. Personally, this is my favorite of the ones I’ve tried. It also comes with easy access to investments and free credit score monitoring.
- Monthly fee: $13.95
- Overdraft fee: It’s complicated.
- Feature: 64,000+ free ATMs (AllPoint, select 7-Eleven stores, & BBVA US ATMs); unlimited check writing
- Note: $25 minimum deposit to open a new account. BBVA Visa® Debit Card costs $10. Also, BBVA does NOT use ChexSystems. INSTEAD, it makes use of something called “Early Warning Services” (or EWS) in order to screen new banking account applicants. This system primarily flags major criminal issues, such as forgery, check fraud, or “check kiting”.
How to Fix Your Negative Banking History
Once you have your brand new checking account opened and ready to go…
Next, you’re ready to look at fixing any potentially poor checking account history.
That way, you can get back in the good graces of America’s major financial institutions in no time.
Check Your Own ChexSystems Report
The first thing you probably want to do is order a copy of your ChexSystems report. Since ChexSystems is the big consumer reporting agency (CRA) which aggregates banking data about you, this is super important.
Your personal ChexSystems history and report will be very useful in understanding why a bank may or may not approve you for a new account. That being said, even if the bank you want to use does NOT use ChexSystems, reading your report will help you understand where to repair your banking account history and what areas to focus on first.
- Paying any outstanding overdraft fees
- Getting rid of negative account balances
- Contacting banks to clear any errors or mistakes
- Lowering your overall debt balances (or consolidating debt)
- Raising your credit score
- Marking down the 5 year “drop off” date for other issues
No matter what your credit score or banking history looks like right now…
You CAN fix it.
Simply focus on doing the steps you can each day/month/year, and over time you can have an incredible bank and credit report.
The sky is truly the limit!