What is a Second-Chance Checking Account?

What is a Second-Chance Checking Account?

Second-chance bank accounts are for people who need helping to rebuild their banking histories that have been tarnished by bounced checks, account closures, and unpaid fees. These types of blemishes can make banking institutions wary of approving individuals who are looking to open new accounts. If a bank views an individual as high risk, it might deny their application to open an account.

Some banks and credit unions offer second-chance checking and savings accounts for people who might be unable to open a more traditional bank account. They offer the opportunity to rebuild your banking history and restore the faith of other national or regional banks and credit unions.

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What if You’re Denied for a Checking Account?

If you have misused your bank account in the past, you may not be approved to open another account. Here are some potential misdeeds that might lead to you being blacklisted for an account at a major bank:

• Unpaid overdraft balance
• Abusing debit cards and ATMs by withdrawing and spending more than you have available
• Applying for lots of accounts in a short period of time
• Multiple bounced checks

However, if you’re a victim of fraud or identity theft and have lost control of your bank account, your account may be involuntarily closed. This action can place another black mark on your banking history, even if it occurred through no fault of your own.

These actions signal to banks that you are not responsible with your money and will likely not pay the fees that are incurred by your mismanagement. These financial misdeeds are tracked by a company used by most major banking institutions called ChexSystems.

What is a ChexSystems Report?

People who don’t pay their bills are reported to credit bureaus, which can affect their overall credit score. A ChexSystems report functions like a credit report, but instead, it’s a record of information like overdrafts and unpaid fees. When you apply for a checking account at a bank, one of the first steps in the process is that the bank or credit union will run your ChexSystems report to see how much risk you present to them.

These negative marks on a ChexSystems report can last for up to five years and can prevent you from being able to open a traditional account, which can limit your ability to pay bills, move money around, and apply for credit. The report indicates to banks that you’re not responsible with your money and pose a risk. However, some banks offer second-chance checking accounts that offer individuals the chance to prove that they can bank responsibly. These accounts put less weight on prior mistakes or do not rely as heavily on the ChexSystems report.

Benefits and Drawbacks of a Second-Chance Bank Account

While a second-chance account may feel like a lifeline for some banking customers, others may not appreciate the monthly fees associated that are frequently associated with these accounts. There are benefits and drawbacks of opening a second-chance checking account.

Pros:

• Lots of the same features as a regular bank account like a debit card and online banking
• Responsible use can allow you to upgrade to a regular account after a year
• Better option than a prepaid debit card or predatory check cashing service
• Helps people learn the budgeting basics and how to manage their money

Cons:

• High monthly maintenance fees
• Lots of banks don’t offer second-chance accounts
• Lack of features like overdraft protection, which may be a detriment to some