Having a bank account is a necessity in life. But, if you have marginal credit or a limited credit history, it may be difficult to open a new bank account. Some traditional banks might turn you down for a checking account if you have bad credit due to unpaid overdraft fees, missed or late credit payments, and account closures.
But this shouldn’t discourage you. You can still open a bank account with bad credit. Whether you’re worried about your approval odds or you’ve been denied by your local bank, there are second chance banking opportunities for people with bad credit or poor banking history.
The first step to improving your banking opportunities is to understand what banks look for when they evaluate your credit and bank history.
How Do Banks Determine ‘Bad’ Credit?
Similar to credit card companies, banks look at the credit history of potential customers before granting them access to financial products and services, which include checking and savings accounts.
📊 Traditional banks could conduct a soft or hard credit inquiry when you open an account
When you open a checking or savings account, most banks do a soft inquiry on your credit report. A soft inquiry does not affect your credit score, and typically occurs when you or someone you authorize checks your credit report. Some examples of soft inquiries are self credit checks, a creditor checking your credit for a preapproval, or an employment background check.
But keep in mind that some banks could do a hard pull (also known as “hard inquiry” or “hard credit check”) on your credit report, to identify the level of risk associated with your prior banking history. A hard credit pull typically occurs when a lender or credit card issuer checks your credit when making a lending decision and is reported to the three major credit bureaus (e.g., Equifax, Experian, and TransUnion), which can slightly decrease your credit score in the short term. In lieu of checking your credit score, some banks might instead run a ChexSystems report.
📄 Banks may use a ChexSystems Report to look at your banking history
Banks also work with other agencies to dig deeper into your banking behavior. One of the agencies they may turn to for this is ChexSystems, which uses your social security number to look up your financial history. ChexSystems can see bad checks, overdrafts, and account freezes that may have negatively affected your financial history. It also sees reported fraud, such as check kiting. The company then reports this information to banks. In addition, banks review for unpaid negative balances on checking or savings accounts, excessive withdrawals, and check fraud. If any of these behaviors are present, the bank may reject your application for an account.
If this happens, you have a few options. First, you can try to fix the issues. A second option is to ask the bank to reconsider your account application. Lastly, you can try to find a bank that won’t check your past banking history.
What Are Second Chance Bank Accounts?
It can be challenging to rebuild your finances when you have bad credit or poor banking history. There are banks and non-bank fintech companies that offer second chance banking, which provides checking accounts that can help you rebuild your banking history.
Second chance checking accounts work like regular bank accounts but may have fewer services and certain limitations. They usually have monthly fees that can’t be waived, and they often carry more requirements than standard checking accounts, such as setting up regular direct deposits and requiring higher minimum balances. They typically won’t allow you to write checks or enroll in an overdraft program. It’s also important to note that these checking accounts can help improve banking history, but they don’t rebuild credit. For that, consider a secured credit card.
Second Chance Banking Options
Many large U.S. banks allow individuals to open second chance bank accounts if they have a negative banking history. That said, many of them have a number of bank fees that are important to fully understand and evaluate when considering your options. Depending on the second chance option, checking account fees, mobile banking apps and ATM networks will differ. It’s worth weighing all your options before choosing the right second chance checking account for you. The best second chance accounts come with:
- Low or no monthly fees
- No minimum balance requirements
- Services such as debit card access, online bill pay and unlimited check writing privileges
- Few limits, such as daily or monthly maximum transaction amounts
Below is a summary of the fees, requirements, and features of some second chance banking options.
Wells Fargo Clear Access Banking
- $25 minimum deposit to open account
- $5 monthly service fee (waived for account holders aged 13 to 24)
- No overdraft or non-sufficient funds (NSF) fees
- Lower account balance requirements
- Checkless checking
- Mobile banking access through the Wells Fargo mobile banking app
- Debit card for making purchases, paying bills or withdrawing cash
- Access to approximately 12,000 Wells Fargo ATMs
- 24/7 customer service and fraud monitoring
LendingClub Essential Checking
- $10 minimum balance to open
- $9 monthly service fee
- Must enroll in online banking, eStatements and receive a debit card to qualify for this account
- Debit card ($500 daily limit on purchases and ATM withdrawals)
- Mobile check deposit ($1,000 daily limit; $2,000 limit per 10 days)
- LendingClub mobile app access and mobile wallet integration
- Direct deposit
- Ability to upgrade account to Rewards Checking after 12 months of responsible banking
Green Dot Bank GO2 Bank Account
- No minimum balance required to open an account
- No monthly fees with eligible direct deposit; otherwise, $5 per month
- Overdraft protection of up to $200
- Get paid up to two days early with direct deposit
- Free Samsung Galaxy smartphone with qualifying direct deposit
- Free nationwide ATM network
- Debit card
- Mobile banking
- Earn cash back on eligible gift card purchases
- Deposit cash at participating retail store locations
Second Chance Banking Option through Chime
Chime Second Chance Banking
- No minimum balance requirements
- No monthly maintenance fees
- No overdraft fees¹
- Access to +60,000 fee-free ATMs²
- No foreign transaction fees
- Get paid up to 2 days early with direct deposit³
- Grow savings automatically5,6
- No ChexSystems review or credit check
- Award-winning mobile app
Checking Accounts for Bad Credit
Now that you are familiar with second chance banking, it’s important you know what to look for when attempting to open a bank account with poor credit. Consider the following:
Look for banking options that don’t conduct credit checks
Not all banks run a credit check or even need a deposit to open an account. In fact, there are excellent options for accessing accounts, including traditional banks, online banks and non-bank fintech companies. These options do not rely on consumer reporting agencies like ChexSystems. Chime, for example, does not run credit checks or use ChexSystems as part of their decision-making process for enrolling new members.
Open an online bank account with no deposit
Most traditional banks require an opening deposit before you can acquire a new checking account. These deposits can range from $25 up to $2,500. But even a modest deposit amount can be a burden for some people. Fortunately, there are options for those who cannot afford a deposit or for those who want to avoid paying a fee to open a bank account. The good news is that you can open an online bank account with no deposit. For example, Chime offers access to online checking accounts with no deposit required.
Choose a banking option with no fees
You won’t have to worry about fees piling up and worsening your credit score if you choose a second chance banking option with little to no fees. For example, Chime accounts have no monthly fees, no minimum balances, and no overdraft¹ or foreign transaction fees. And you can even get your paycheck up to 2 days early with direct deposit.³
How to Fix Your Past Banking Mistakes
If you’re rejected for a new bank account, it may be worthwhile to try to fix your past banking mistakes. This, in turn, will help you repair your financial history.
Step 1: Review your ChexSystems Report
To start, you can order your ChexSystems report. ChexSystems is a consumer reporting agency (CRA) that collects data about how you’ve used your past bank accounts. Your ChexSystems report will be particularly helpful if your ideal bank uses this CRA to evaluate account applications. But, even if the bank in question doesn’t use ChexSystems, this report can help you repair your financial history as you’ll be able to see the issues that you need to correct.
For example, if you have negative account balances, like a loan that hasn’t been paid in full or a former overdrafted bank account, you can call the banks listed to find out if you can still pay them back. If they will allow you to do this, you can then ask if they will remove their negative reports.
If you can’t get your past mistakes corrected and removed from your ChexSystems report, keep track of the dates when the bad banking occurred. Most negative marks drop off reports after seven years. So, if you are close to the seven-year mark, the issues may resolve themselves.
Something else to be aware of: just like a credit report, a banking history report can have errors. So, make sure you look at your report completely to ensure it is accurate. If not, contact ChexSystems and start a dispute over the mistakes on your report.
Step 2: Pay off lingering debts
Having missed or late payments can drastically affect your credit score. That’s why it’s so important that you pay your bills on time and in full each month, and try to keep your balances low. You should also pay attention to your credit utilization, or how much you charge on your credit card. It’s typically recommended that you keep balances below 30 percent of your credit limit; sticking to this 30 percent credit utilization figure can really help your credit score.
There are multiple tactics to help you methodically pay off money you owe. The two most popular debt repayment strategies are the avalanche debt repayment method and the snowball debt repayment method. Both of these methods work best when you utilize an automatic savings account to ensure you don’t spend the money you need to pay off your debt.
Banking through Chime, you can automatically deposit money into your savings5. Chime members can automatically transfer a percentage of every paycheck6 into their savings account to achieve their financial goals faster. It’s a hassle-free way to add to your savings and help you make a dent in your debt.
Step 3: Build your credit
With second chance banking, opening a bank account with bad credit is possible, but the best way to ensure sustainable financial health is to build your credit. There are several steps you can take to build your credit score. The important thing to remember is building good credit takes time, but if you put in the work, you’ll gradually start to see improvements in your credit score.
One great way to build your credit is by using the Secured Chime Credit Builder VisaⓇ Credit Card. Each month, Chime reports payments to the major credit bureaus so, with regular, on-time payments, everyday purchases like gas, groceries, bills, and subscriptions can all help you build your credit score.⁴
There are no annual fees, no interest, no credit checks, and no minimum security deposits. However, to be eligible to apply, you must have received $200 or more in a qualifying direct deposit to your Chime Checking Account in the last 365 days.7