Second Chance Checking
If you’ve been turned down for a regular checking account but need access to traditional banking services, a second chance checking account might be your best option. Prepaid cards are another option, offering all of the features and functionality of a checking account/debit card combo – just without physical checkbook.
WalletHub’s comparison tool below makes it easy to compare second chance checking accounts and prepaid cards
. In the “Expert’s Answers” section, you can get money saving tips and more
learn about the pros and cons of both second chance checking accounts and prepaid cards. less
Ask our Experts
Why Was I Denied a Traditional Checking Account?
As is the case with credit cards, consumer reporting agencies track and maintain information about consumer banking performance. This information serves as the basis for a bank’s decision regarding your checking account application.
With bank accounts, however, it’s not the three major credit bureaus (Experian, Equifax or TransUnion) keeping tabs on you. Rather, it’s ChexSystems (the most common), Early Warning Systems (EWS) and TeleCheck (reports only on bad checks you’ve previously written).
With that in mind, there are several possible reasons why you were turned down for a regular checking account. In the past, you may have committed one of the following violations, which get noted on your banking history report:
- Bouncing checks too often
- Frequently overdrawing your account balance
- Failing to reimburse your financial institution for overdraft balances and fees
- Mismanaging your checking account some other way
- Falsifying or providing fraudulent information on a previous checking account application
- Abusing your savings account privileges (e.g., repeatedly exceeding your transfer limit)
How Does Second Chance Checking Work?
As its name suggests, a second chance checking account provides “another shot” at mainstream banking after previous mismanagement. In that regard, it also allows you to rebuild a positive financial record by providing you with traditional banking service you wouldn’t otherwise qualify for.
To that end, let’s discuss some of the requirements, features and limitations of second chance checking accounts.
- Requirements: Eligibility requirements for a second chance checking account vary by institution. Some require you to complete a credit counseling course or pay off outstanding balances before you can open an account. Others impose a minimum daily balance or direct deposit sign-up requirement to avoid monthly service charges.
- Features: Second chance checking accounts offer features similar to those of regular checking. The list will be shorter at some institutions than others, but features can include check-writing and electronic banking privileges (bill pay, direct deposit, and online/mobile account access), and an ATM/debit card.
At some institutions, certain features (such as a debit card) will be activated as you progress successfully through various stages of your account ownership.
- Limitations: Some second chance accounts won’t ever allow you to write checks or use a debit card due to your previous errors. Others won’t offer premium features, such as a free box of checks, overdraft protection, ATM deposit, debit card rewards or interest-earning capabilities.
Your withdrawals and purchases may even be limited to a certain dollar amount and specific ATMs for a period of time. Holds on deposited checks may also be longer than with a standard checking account.
- Costs: Second chance checking accounts are generally more expensive than standard accounts. Your biggest expense will be a monthly fee, which varies by institution but usually ranges between $5 and $15.
Although the limitations at some banks and credit unions might seem excessive, the point is to prevent your unsatisfactory banking history from repeating itself and to give you a fresh start. Restrictions help to mitigate potential losses for financial institutions in case customers fail to fulfill their obligations.
How Do Prepaid Cards Work?
Prepaid cards are a good alternative to second chance checking accounts because you can’t be turned down for one.
You might be surprised by how much prepaid cards can accomplish. You don’t get a checkbook, but they can otherwise serve as a perfect substitute for a checking account, giving you flexibility in terms of how you spend and manage your money. Prepaid cards also come with the same fraud protection that you would get from a checking account debit card.
Prepaid cards can be used to:
- Withdraw money from ATMs
- Make purchases in stores and online
- Receive direct deposits
Prepaid cards have their own fee structure, which differs from checking accounts. For example, there may be a fee for every ATM withdrawal. The average prepaid card charges 11 different fees and can cost anywhere from $0 to $400 per year. If you choose carefully, you may get your effective costs down to zero, which is the closest thing you’ll get to a free second chance checking account.
So shop carefully to make sure you get a card with the features you need and fees that make sense for you.
Can I Get a Checking Account with Bad Credit?
Yes, you probably can. There is a difference between your credit history, which is available from credit bureaus
like Equifax, Experian and TransUnion, and your banking history, which is available from ChexSystems, EWS and TeleCheck. When you apply for a checking account, the bank or credit union will be far more interested in how you have managed previous bank accounts than how you have managed your credit.
So if you have blemishes on your credit record but your banking history is clean, you may still be eligible for better terms than a second chance account would provide. You should therefore start by comparing standard checking accounts
before turning to second chance offers.
And don’t forget that you also have the option of using a prepaid card instead of a checking account. Neither your credit history nor your banking history will be a factor when opening a prepaid card account.
How Long Before I Can Get a Regular Checking Account?
After 12 to 24 months of responsible banking behavior (e.g., keeping within the overdraft or bounced-check limit), you can request an account upgrade to regular or even free checking. Some banks and credit unions might allow you to get a credit card or a small personal loan at that time as well.
Your ultimate goal should be to re-establish a positive banking record and to rejoin the financial mainstream. A second chance checking account will help you get there. Think of it as a bridge to the next level.
Tips on Finding the Best Second Chance Checking Offer
Before you begin shopping for a second chance checking account using WalletHub’s Comparison Tool, you should first close any inactive accounts that have a negative balance. Contact the bank or credit union, bring the balance back to zero and close the account.
With that out of the way, you can get to shopping. Below, we’ve provided some useful tips to ease the process and help you find the best second chance checking offer.
- Comparison Shop: You’ll need to do some homework, comparing offers based on fees for monthly maintenance, ATM withdrawals and other features that are important to you.
Keep in mind that second chance checking goes by other names such as “fresh start” or “second opportunity” checking. Offers will vary by institution, and credit unions — as well as many regional and community banks — typically charge less than larger banks. So start there.
- Seek Credit Counseling: If you can’t get a regular checking account because of bad financial habits, get help from a credit counselor. Often for free, professional credit counselors can teach you how to budget effectively and set realistic savings goals.
Many financial institutions already require you to undergo a mandatory financial education course in order to get a second chance checking account, so take advantage of it. Some credit unions offer these courses for free, even if you don’t plan to open a second chance checking account with them, so look into these as well.
- Clean Up Your Banking Profile: You are entitled to a free banking history report from consumer reporting agencies, including those that report on banking activity, under the Fair Credit Reporting Act. If you notice any potential errors, dispute them with the appropriate agency and contact the financial institution that supplied the information.
Unless you successfully dispute a legitimate error on your report, a negative notation stays on your record for up to 7 years. Also, do not trust businesses that offer to clean up your report for a fee. They’re likely scams. There is simply no quick fix to a blemished banking record.