When you go to a financial institution, a bank, or a credit union, to open a new account, the bank will likely run a check on you to determine your risk level.
If you are deemed as being too risky, you may be denied an account. If you have experienced this, second chance banking might be something of a lifesaver.
These accounts come with fewer perks and features – but they can help you improve your standing to qualify for a standard account eventually.
5 Best Second Chance Banking Accounts
Here are our top 5 picks for the best second chance bank accounts you can open today:
- Varo Second Chance Checking
- LendingClub Essential Checking
- Chime Credit Builder
- Wells Fargo Clear Access Banking
- People’s Bank Second Chance Checking
Second Chance checking accounts work just like normal checking accounts, with the only difference being fewer features and perks. You will not get access to overdraft, but there are no NSF fees either. Some have a monthly fee, while others do not.
Just like standard checking accounts, second chance checking accounts come in different shapes and sizes. Since we all have different financial requirements and goals, it’s unlikely that one account will tick the boxes for everyone.
That’s why we’ve included many different accounts – so you can review them and find the one that works best for you.
Varo Second Chance Checking Account
If you’ve been denied a bank account based on your banking history, you can still access some of the perks of a traditional checking account with Varo’s second-chance banking. Varo does not use ChexSystems or require a credit check.
The Varo checking account doesn’t have a minimum balance requirement, overdraft fees, or monthly fees. It comes with a debit card and access to more than 55,000 fee-free ATMs through Allpoint.
Account-holders who set up direct deposits may also be able to get paid two days early. While Varo doesn’t offer paper checks, you can make payments through the app after making a direct deposit.
Additionally, you can link your account to a Varo Savings account which offers a 3.00% – 5.00% APY, round up on qualifying debit card purchases, and automatically transfer the change to your savings account.
LendingClub Essential Checking
LendingClub’s Essential Checking account can help individuals with less than stellar credit scores build a solid banking history. Offered on a select basis, the account is ideal for applicants who don’t qualify for LendingClub’s Rewards Checking account.
To qualify for the account, you must enroll in online banking with eStatements and use a LendingClub debit card.
The account comes with a $9 monthly fee and requires a $10 minimum deposit to open but does not require a minimum balance after opening.
It also has a $500 daily debit card limit, a $1,000 daily mobile check deposit, and a $2,000 mobile check deposit limit per 10 days.
After a full 12 months of responsible banking with an Essential Checking account, you may be able to upgrade to a Rewards checking account.
Chime Credit Builder
Chime Credit Builder does not run any credit checks or ChexSystems checks, so this will not keep you from qualifying for their account.
There is no minimum deposit requirement to open the account and no monthly fees either, helping you get back on your feet that much quicker.
With Chime, you get a checking account and a savings account. You can also round up transactions and automatically transfer the difference to your savings account.
Doing this can help you grow your savings without putting much effort into it. Another great Chime feature is the ability to automatically transfer a percentage of direct deposit payments into your savings as soon as the money hits the account – which you can receive up to 2 days earlier.
Chime does away with many of the fees you’ll usually find in checking accounts, including overdraft fees and foreign transaction fees.
Using the Credit Builder account, you can link your spending account to pay balances on time automatically. Chime will also report certain transactions, such as paying a balance in full to credit bureaus, helping you improve your credit score.
Do keep in mind that Chime is an online bank, so there are no branches to visit, and everything needs to be done online through their app.
Wells Fargo Clear Access Banking
Wells Fargo’s Clear Access Banking Account is designed for those who experience issues opening a standard account; however, it’s also suitable for teens and customers who want to avoid certain fees and are willing to give up check-writing abilities.
To open this account, you will need to deposit a minimum of $25 while there is a monthly service fee of $5,00. On a positive note, there are no overdraft fees or NSF (insufficient funds) fees.
While you won’t be able to write checks, you still get access to online and mobile banking, a debit card, and Bill Pay, among other things.
The debit card will let you withdraw from over 13,000 Well Fargo ATMs fee-free. You also get access to many tools that can help you better manage your finances.
People’s Bank Second Chance Checking
Peoples Bank Second Chance Checking is offered by Peoples Bank headquartered in Paris, Texas. It comes with a minimum opening balance of $30.
However, there are no minimum balances to maintain once the account has been opened.
The account does not have any charges for transactions, including deposits as well as writing checks.
You also get free online and mobile banking, including Bill Pay. Their website lacks information – but they offer a toll-free number.
You can also reach them via email by filling in the contact form.
How Banks Assess Your Risk Factor
There are several different checks a bank can run on you. Primarily there are two separate checks.
There are credit checks and ChexSystems checks. These two are different and can be done in different ways, as we shall see.
Many banks run credit checks on new customers applying for a bank account. In most cases, credit checks are run on those applying for a checking account since these can have some credit features such as overdrafts. A bank will also run a credit check for credit card applications.
When a bank does a credit check, they request this information from a credit bureau. There are three credit bureaus in the US:
These credit bureaus collect data about you and then issue a FICO score. FICO is short for Fair Isaac Corporation – an analytics company that can take all of the information the credit bureaus have on you and issue your credit score.
Hard Pull vs. Soft Pull
When the bank runs a credit check on you, it can do either what is known as a soft pull credit check or a hard pull credit check.
Understanding the difference between these two is crucial as it can have adverse effects on your score.
A soft pull credit check is a type of credit check that doesn’t affect your score. Instead of getting the full report, a soft pull credit check returns a summary of your credit report.
Doing this allows the bank to make a decision based on the information provided.
Hard pull credit checks when applying for a bank account are less common but not unheard of either. A hard pull credit check returns the entire report.
Contrary to a soft pull, hard inquiries can negatively impact your score, especially if you submit multiple applications.
ChexSystems is a consumer reporting agency that works separately to credit reporting agencies.
ChexSystems is a consumer reporting agency that operates within the limits of the Fair Credit Reporting Act (FCRA, for short).
Unlike credit bureaus, ChexSystems only reports on your banking history, including any checking and savings accounts that have been closed.
Banks and credit unions use this report to understand your historical performance when it comes to deposit accounts. Specifically, the report will contain information about:
- Accounts that have been closed involuntary
- Bounced checks
- Outstanding balances
- Abuse of accounts and card
- Suspected cases of fraudulent activity
- Number of account applications
Based on the above information available on the report, the bank may grant you or deny you an account.
It’s also important to note that ChexSystems reports and credit reports are separate, and neither one is included in the other.
According to the rules laid out in the FCRA, you are entitled to one free copy of your ChexSystems report once a year. You can request the report in one of three ways, depending on which is most convenient for you:
- Online through the agency’s website
- By telephone
- By fax
- By mail
ChexSystems report requests are not exclusive to new customers. Banks and credit unions run what is called a bank sweep or ChexSystems sweep.
Through this sweep, the bank checks report on existing customers and may close your account if the report result is negative.
Why Banks Deny Checking Accounts
As mentioned earlier, a bank can deny you a checking account if your score is too low.
Banks can also deny you a checking account if your ChexSystems report shows any activities that are seen as undesirable by the bank.
That’s because the bank will perceive you as risky, their reason being that if you have failed to pay outstanding balances in the past, you are more likely to do it again.
The important thing is not to panic – many people are denied a checking account. While you might think that it’s only happening to you, in reality, it is far more common than you think.
The good news here is that there are steps you can take to improve the situation.
What To Do If You Have Been Denied a Bank Account
If you have been denied a bank account, there are several steps that you can take to remedy the situation.
The route you ultimately take will depend on several things, which we have laid down below to give you a better idea of what options are available to you.
Step 1: Request a copy of the report.
Requesting a copy of the report is important so you can go to the next step. Make sure you understand which reporting system was used to get a copy of the right report.
Step 2: Verify the information is accurate.
Once you have obtained a copy of the report, you’ll need to make sure that the report’s information is accurate. While mistakes are unlikely, they do happen from time to time, and as such, you need to make sure you’re not unfairly penalized.
Step 3: Dispute any errors.
If you do find any errors, you can open a dispute. As this varies from one agency to another, the best course of action is to refer to the agency’s website and follow the instructions provided there.
Step 4: Start building a better history.
If the credit report is true, it’s not the end of the world. You can start building a better credit history through second chance banking accounts. We will be covering these next.
Benefits of Second Chance Banking
A second chance bank account can help you get access to several banking facilities – even if you have a bad credit score and have been denied a conventional checking account, you can still get a checking account with bad credit.
As such, they can be a great personal finance tool to help you get a fresh start. Do keep in mind that you will have to give up a few things, but it’s not all bad.
No Overdraft Fees
One of the things that these types of accounts don’t include is an overdraft, so you won’t need overdraft protection. You won’t pay overdraft fees either since you cannot overdraft your account – you can only spend what’s in your account balance.
FDIC or NCUA Insured
The account will still have many useful features and perks. These include a mobile banking app with online bill pay and check mobile deposit, a prepaid debit card with free ATMs, and other essential checking account features.
Lack of Fees
Some accounts are free, but others will charge a monthly maintenance fee. In most cases, you may avoid it by meeting the minimum balance requirements or making qualifying direct deposits.
While free is a good thing, an account with no fees might not necessarily be the best account for you. Take the time to understand your needs and requirements and what you hope the account will help you achieve. Once you have answered these questions, you are in a far better position to choose the best account for you.
The important thing is to make sure you take advantage of this opportunity and implement a strategy to clear your record while avoiding going back into the red. Pay off any outstanding debts using the snowball method and set up early warning systems to help you understand if things are starting to go south.
Once you’ve paid off the debts reported in your ChexSystems reports, you can ask the creditor to update your information. Doing that will help you pass with flying colors the next time you apply for a checking account.
Second Chance Banking FAQs
What banks offer second chance banking?
Many banks offer second chance checking accounts, also known as fresh start checking accounts and opportunity checking accounts, among other names.
What banks don’t go through ChexSystems?
While most banks do go through ChexSystems reports, not all banks run ChexSystems report.
Second chance banking is designed to offer customers who might otherwise fail a ChexSystems check access to banking.
It allows them to repair unfavorable reports by using conventional financial products.
What credit unions offer second chance checking accounts?
Since credit unions typically have member eligibility criteria, start by identifying which credit unions you may be eligible to join. Then determine whether they offer a second chance checking account.
If they don’t, you might want to consider an online bank since these tend to come very close when it comes to fees and perks.
Some of the best credit unions to consider are:
- American Airlines Credit Union: Ascend Checking
- Corporate America Family Credit Union: Fresh Start Checking
- Hope Credit Union: Easy Checking
- Staley Credit Union: Renew Checking
- InTouch Credit Union: Fresh Start Checking
How do I correct my ChexSystems report?
The first step that you’ll need to take is to get yourself a copy of the report. You can do this through ChexSystem’s website or by calling their number.
Once you receive the report, you’ll need to make sure that the information is accurate and, if any errors, open a dispute.
If the information is accurate and you have any debts, your priority should be to clear those debts. If money is tight, try to come to an arrangement where you pay by installments or see if they’re willing to settle for a lower amount.
Once all the debt is cleared, ask the creditor to update your ChexSystems file. Doing this will help you clear your record and give you something of a fresh start.
If the above doesn’t work, you can try to wait it out with information cleared five years after it’s reported.
Is Second Chance Banking Best for You?
Second chance banking is designed to give those who have been denied a bank account a second chance at getting one.
While you’ll have to give up on a few things, second chance accounts still come with many features and conveniences, making them a great option.
Second chance banking accounts come in different shapes and sizes. It’s important to understand which features can better help you get back on track and choose the account that offers those things.
While applying for a second chance checking account may feel like a bad thing, in reality, it’s more common than you might think.
And, there’s absolutely nothing to be ashamed about – just take this time to focus your finances so that you don’t have to worry about things like that in the future.