If you’re unable to qualify for a traditional bank account due to a history of overdrafts or unpaid fees, second chance banking can help. Second chance banks offer accounts for individuals that other banks won’t accept after checking their banking history. While 2nd chance bank accounts can sometimes come with higher fees and limited features, they can also give you an opportunity for a financial reset.
In this guide, we’ll explain how second chance banking works and review the 3 best second chance bank accounts you can apply for today.
What is Second Chance Banking?
Second chance bank accounts are checking accounts that you may be able to open even if you’ve consistently been denied when trying to open checking accounts at major banks. Typically, 2nd chance banks either don’t check for past banking issues or are willing to overlook your past history.
Not all banks offer second chance banking, and those that do typically charge more fees than for a typical checking account. Examples include monthly account fees, minimum balance fees, and steep overdraft fees.
Who Needs Second Chance Banking?
Banks look at a variety of factors when deciding whether to approve your application for a new checking account. These can include your credit history as well as your ChexSystems report, which looks specifically at any fees and penalties that banks have assessed on your checking accounts in the past.
Typically, banks won’t deny your application due to bad credit, but rather for blemishes in your ChexSystems report. Negative marks could result from a long history of overdrafts or from closing an account with a negative balance or outstanding fees.
Importantly, ChexSystems only reports penalties. So, even if you have several checking accounts in good standing, having one troubled bank account may be enough to cause banks to deny your application. And these penalties on your ChexSystems report typically stick around for 5 years.
If you have blemishes on your ChexSystems report or have struggled to open an account, second chance banking may benefit you. Second chance banks give you an opportunity to reset your financial history and demonstrate that you’re worthy of banks’ trust.
You can apply for a second chance bank account in the same way you would apply for any other checking account. Most second chance banks have online applications. The only difference is that you may need to provide more information about your income or submit your transaction history from a checking account in good standing, if you have one.
Summary
Second chance banking offers a way to access banking services even if your banking history means you may be denied for a traditional checking account. While some second chance banks charge high fees and put strict limits on your account, you can also find banks that won’t check your ChexSystems report or credit score when you apply.
Chime and Varo fall in this category. They offer fee-free checking accounts that you can qualify for even if you’ve had issues with banking in the past.
