Second chance banking - Bank accounts for bad credit
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If you have bad credit or if you've had a previous bad banking experience, you may find it difficult to open a new bank account. This is especially true when it comes to checking accounts. Since a checking account requires significant management, banks are hesitant to allow consumers with bad credit to open one. But a concept has emerged in recent years, called second chance banking.
This concept specifically provides bank accounts for bad credit. And just as banking is increasingly going digital, you can even get a second chance banking account online. If you've been having difficulty finding checking accounts because of bad credit, look no farther — we have an analysis of five of the best in the business.
What is a second chance checking account?
A second chance checking account is designed specifically for those who have had either a previous poor banking relationship or bad credit history. Either can limit your ability to open a bank account, as banks could be concerned that you may be unable to successfully manage a checking account.
One of the factors that cause a need for second chance banking is previous banking history. If you closed an account that had an outstanding debit balance at another bank, that account will be reported to ChexSystems. Banks rely on this source to alert them of consumers who have outstanding bank balances. ChexSystems works similarly to the major credit bureaus, except the information is limited to bank relationship history only.
Second chance checking accounts offer an opportunity to open an account without the bank running your profile through ChexSystems. Many won't even run a credit report on you. Recognizing that you have impaired credit or a damaged previous banking relationship, these accounts are designed specifically to give you that much-needed second chance.
5 best checking accounts for bad credit
1. Chime
It even has a credit builder credit card to help you build good credit. The company claims using this card can increase your credit score by an average of 30 points in three months. It's a secured card, so your credit limit is determined by the amount of the security deposit you back the account with. And not only is there no credit check to apply, but there's also no annual fee and no interest charged.
Pros
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No credit check is required to open your account.
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There are no minimum balance requirements.
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Chime charges no monthly fee.
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Access more than 60,000 fee-free ATMs.
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Overdraft protection of up to $200.
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Chime Visa® Credit Card helps you improve your credit score.
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The Visa card also provides spending roundups to put money into your savings account. And you can automatically transfer a percentage of every paycheck into savings.
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Customer service is available through the app, email or by phone
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You can send money instantly to friends using Pay Friends.
Cons
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No brick-and-mortar branches.
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There is a fee of $2.50 for out-of-network ATM withdrawals.
Want to learn more? Go to Chime's Website | Our Chime review
Chime Disclosure - Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A.; Members FDIC.1Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.^Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account.
2. Juno
Juno is a fintech company that does not require a credit check, which means opening an account won’t affect your credit score.
With Juno you can get a checking account with a bonus rate of 1.20% on eligible deposits. There are two account options: a basic account and Metal account. The basic account is free but comes with fewer perks than the Metal Membership which costs $9.99 a month.
You can get a 1.20% bonus rate on up to $5,000 for the basic account or $30,000 for the Metal account. And when you shop at participating retailers, you can get up to 5% cash back.
Juno prides itself in being immigrant-friendly, with offices in Singapore, India, and San Francisco. You can open an account in under five minutes with a social security card and passport. And if you travel often, you’ll be happy to know there are no fees on foreign transactions.
Pros
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Earn a 1.2% bonus rate on your checking account.
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Get up to 5% cash back at your favorite stores.
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Use in-network ATMs free. And get ATM reimbursements when you go out-of-network.
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No foreign transaction fees.
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No credit check needed to open an account.
Cons
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The Metal account requires a $9.99 fee per month to unlock the best Juno has to offer.
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If you have the basic account, you'll be charged a $2 fee per remote-capture check deposit.
Want to learn more? Go to Juno's Website | Our Juno review
3. LendingClub Bank
LendingClub Bank offers second-chance banking through its Rewards Checking account. While they may not pull your credit to weigh your credit score, they use your credit information to help validate your personal details. This account comes with unlimited 1% cash back on qualifying purchases, ATM fee reimbursement and you could even get your paycheck deposited early. There are also no monthly maintenance fees or overdraft fees.
The Rewards Checking account includes an integrated financial dashboard. This gives you the ability to create and follow a budget, track your spending, analyze spending habits and develop a plan to pay off debts. And you can use it to determine your net worth since it can link to external accounts.
Pros
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You may qualify for Rewards Checking even if you have had a bad banking relationship or two in the past.
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The financial dashboard aggregates external financial accounts and lets you create and manage a budget, track spending, and pay off debts.
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You can earn 1% cash back on purchases.
Cons
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Must maintain a monthly balance of $2,500 to qualify for cash back
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Requires $25 minimum to open an account
Want to learn more? Go to LendingClub Bank's Website | Our LendingClub Bank review
4. GoBank
If you've had troubles with a previous bank account, GoBank will be an excellent choice. You can open a checking account without having your profile run through ChexSystems. That's the reporting agency used by banks to keep track of personal banking relationships.
GoBank charges a number of fees but many can be easily avoided. For example, you can purchase a starter kit at a participating retail location for $2.95 (or less). This requires an initial deposit of at least $20. But if you sign up online or through the GoBank app, there's no starter fee and no minimum initial deposit requirement.
You get a Visa debit card that can be used at a “massive” ATM network, though no specific number of ATMs is indicated. And since GoBank is part of the Green Dot organization, you can also access cash at thousands of retail locations.
Pros
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You can open an account even if you have a bad relationship with a previous bank.
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No minimum account balance required if you open your account online or through the mobile app.
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Access cash through tens of thousands of ATMs and retail locations.
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The monthly service fee is waived with a monthly payroll or government direct deposit of $500 or more.
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Available to consumers nationwide.
Cons
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There is a monthly fee of $8.95 if you don't have a direct deposit.
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The out-of-network ATM fee is $3.00.
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If you add cash to your account through a participating retailer there is a fee of $4.95.
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Paper checks are available at a cost of $5.95 for a pack of 12.
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There is a 3% fee for purchases from foreign websites and merchants.
5. Peoples Cash Solutions
People Cash Solutions offers a Second Chance Checking account for those who don't qualify for a traditional account. The account comes with a debit MasterCard, a personal checkbook, online banking with bill pay, plus a savings account. Funds in your account are fully insured by FDIC. Plus, the account is available in all 50 states.
One of its more unusual features is that it comes with paper checks. That could make it easier to pay certain bills and avoid the need to carry cash in your wallet. And with the MasterCard debit card, you have access to more than a million ATMs in more than 210 countries around the world.
Pros
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The account comes with a debit card that will be accepted anywhere MasterCard is welcome.
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Your account comes with paper checks, including a real checkbook.
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You can apply for a joint checking account.
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There are no fees for signature-based or PIN-based transactions or for check writing.
Cons
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The account comes with a monthly fee of $4.95 for each statement cycle.
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Requires a minimum initial deposit of $30.
Pros and cons of second chance bank accounts
As you can see from the reviews above, second chance checking accounts typically come with many of the same benefits as traditional checking accounts have. But they're not without a few drawbacks. Let's consider both the pros and cons of second chance bank accounts.
Pros
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Lets you have a checking account even though you may not qualify for a traditional account.
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Give you time to improve your banking history - you can still maintain a checking account while you work to clear up previous banking problems.
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Many of these banks allow you to switch to a more traditional account after as little as one year of a satisfactory history on your second chance account.
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Gives you a chance to establish a banking relationship. This can open the door to high-yield savings accounts, as well as future financings, such as credit cards, auto loans, and personal loans.
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A second chance bank account helps you avoid the high fees of alternative banking services like check-cashing services.
Cons
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Limited banking services. Many second chance bank accounts don't offer traditional features like overdraft protection or cash rewards on debit card purchases.
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A second chance bank account helps you in your financial life, but it doesn't automatically build better credit. That can happen only through repairing previous bad credit and establishing new, good credit.
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Fees. Though some second chance bank accounts don't charge monthly maintenance fees, some charge fees for unexpected activity like depositing funds into your account or making withdrawals through retail outlets.
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Second chance banking isn't a get-out-of-jail free card. You'll need to maintain the account in good standing to keep it open.
How to get approved for checking accounts for bad credit
Surprisingly — or perhaps not — the approval process to open a checking account for people with bad credit is generally easier than it is for traditional checking accounts. That's primarily because many second chance banks don't pull your credit report and don't access your ChexSystems report. The absence of those investigations practically eliminates the possibility you'll be turned down for an account.
In the vast majority of cases, you'll need to apply either online or through the mobile app. That's in large part because most second chance banks don't have a physical branch network.
The typical requirements when opening an account include the following:
- Your full name.
- A valid physical address.
- A valid Social Security number.
- Satisfactory identity verification, such as a government-issued photo ID. Examples include a valid driver license, military ID or passport.
- An initial minimum deposit (if required), which may be between $25 and $50.
Further reading: Best Business Checking Accounts
What to look for in a checking account for bad credit
Shopping for a checking account for bad credit is very similar to searching for a traditional checking account. To find one that works for you, check the same features, charges and limitations as for a traditional bank account.
Some things to keep in mind include:
- The amount of minimum initial deposit, if one is required.
- Ongoing minimum balance requirements, though these are rare with second chance banking accounts.
- Monthly maintenance fees are typically lower than with traditional bank accounts. And you may be able to have them waived for certain activities, such as regular direct deposits.
- The availability of a debit card. This gives you an opportunity to both withdraw cash from ATMs and make purchases online and in stores.
- Cash and spending limits. Second chance bank accounts typically impose limits on how much you can withdraw from your account or how much you can spend on your debit card. You should naturally seek banks with higher limits.
Is a second chance checking account for you?
If you've been unable to open a traditional checking account, second chance checking is definitely worth considering.
Not only will it give you a valid checking account — which is absolutely necessary for functioning financially — but it avoids or even completely eliminates reliance on alternative banking services. Check-cashing services are a prime example of these alternative services. They can charge $10 or more to cash a check. Not only will you avoid that fee with a second chance checking account, but you'll also have an account for direct deposit of payroll and government checks.
Another major benefit is the use of a debit card. This lets you access cash from ATMs, as well as make purchases just like you would with a credit card. That alone avoids the need to carry cash, which is a major safety concern.
But if you're going to open a second chance checking account, use it for its intended purpose. It's something of a “timeout,” giving you an opportunity to improve your finances.
Once you open a second chance checking account, obtain a copy of your ChexSystems report. If there are any outstanding balances with a previous bank, you should get those settled as soon as possible. Once you do, that opens the possibility of moving up to a traditional checking account and accessing other mainstream banking services.
Used properly, a second chance checking account can give you the fresh financial start you've been looking for.
Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com.
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