Second-chance checking accounts are exactly what they sound like: another chance for you to use a checking account responsibly, even if a bank closed one of your accounts in the past because you mismanaged it. Considering how difficult it can be to pay bills without a checking account, these special accounts are a chance to make your life easier — and manage your money more responsibly — the second time around.
How does second-chance checking differ from regular checking?
Though they’re not as common as they used to be, free checking accounts remain an option at several banks. When it comes to second-chance checking, however, you’ll probably have to pay a monthly fee of $10 to $15 (or even more). You may also be subject to account minimums that require you to maintain a certain minimum balance. Otherwise, there’s not much of a difference between the two.
If you manage your money responsibly for a certain period of time, you may become eligible for a regular checking account, much like graduating from a secured to an unsecured credit card.
Why would a bank close my account in the first place?
There are several reasons your bank might shut down your checking account. Most commonly, it might happen after one too many overdrafts. Perhaps you were bouncing checks left and right. Maybe you racked up other banking service fees that went unpaid. Or maybe your account was flagged after suspicious activity such as a sudden influx of large deposits.
Whatever the reason, your bank or credit union will probably report any issues to a company called ChexSystems that tracks closed accounts. Essentially, once you’ve been reported to ChexSystems, you’ve been “blacklisted” as a high-risk customer. The next time you try to open a checking account, many banks will deny the request based on your history.
Banks that offer second-chance checking, however, will give you a bit more leeway. (Note that if your account was previously closed for suspected fraud, you may be out of luck with second-chance accounts, too.)
What if I need a checking account for bad credit?
It’s easy to confuse second-chance checking accounts for bad-credit checking accounts. That’s because bad credit and previous checking-account problems often go hand in hand.
However, while the vast majority of banks will check with ChexSystems to see if you have a spotty banking history, most don’t run your credit history with the major credit bureaus. So, even if you have bad credit, that alone probably won’t get you turned down for a checking account at most banks.
On the flip side, if you have solid credit but are flagged in ChexSystems, it may be possible to find a bank that runs a credit check but doesn’t use ChexSystems when approving accounts. The only way to find out is to call — this isn’t information that a bank will advertise. (You can also search online, but beware of outdated information and never pay for a list of such banks — it could be a scam.) You will probably have more luck investigating online-only banks or local banks and credit unions; major banks almost always use ChexSystems.
Where can I find second-chance checking accounts?
Unfortunately, many of the nation’s largest retail banks don’t offer second-chance checking accounts. (I’ll discuss one notable exception, Wells Fargo, below.) These increasingly risk-averse behemoths don’t need the meager profits that such accounts can offer.
You’ll have much better luck at local banks and credit unions — just pick up the phone and ask around. In fact, credit unions can be a particularly good place to look since their fees are typically lower than banks’ fees. They also have more flexibility to work with customers who have extenuating circumstances, including a previous account closure.
Wells Fargo Opportunity Checking
If you need a second-chance checking account but prefer the convenience of a bank with nationwide reach, Wells Fargo Opportunity Checking is worth a look. With more than 6,200 branches in 39 states, Wells Fargo is the nation’s largest retail bank measured by brick-and-mortar locations. Here are the important details on this second-chance checking account:
- Minimum opening deposit: $50
- Monthly fee: $10 (can be waived if you make 10 debit card purchases or payments a month; maintain a daily balance of at least $1,500; or have direct deposits of at least $500 per statement cycle)
- Benefits: 24/7 access to online banking, free online bill pay, online spending tracker, platinum debit card, free withdrawals at 12,500 ATMs nationwide
Other big-bank options
Below, you’ll find a few more major banks that advertise a second-chance checking account. Keep in mind that availability may vary by branch.
- PNC Bank (more than 2,700 branches in Alabama, Delaware, the District of Columbia, Florida, Georgia, Kentucky, Indiana, Illinois, Maryland, Michigan, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Virginia, West Virginia, and Wisconsin)
- Woodforest National Bank (more than 750 branches in Alabama, Florida, Georgia, Kentucky, Louisiana, Illinois, Indiana, Maryland, Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, Virginia, and West Virginia)
- (more than 680 branches in Alabama, Arizona, California, Colorado, Florida, New Mexico, and Texas)
Though not a traditional brick-and-mortar bank, you can also open a checking account with GoBank. As long as you can pass GoBank’s internal fraud check, you should be good to go. To open an account, you can sign up online or buy a starter kit from Wal-Mart.
You’ll do all of your banking online or via GoBank’s app — there are no physical branches. There are no minimum account balances or overdraft fees, but there is an $8.95 monthly fee unless you have direct deposits of over $500.
What are my alternatives if I’m denied a checking account?
If you’ve tried and failed to open a checking account, even with banks that offer second-chance checking, paying bills and managing your money can be a lot more difficult than usual. Here are a few other ways to pay your bills without a checking account:
- Secured credit cards: If you need to rebuild a bad credit history, secured credit cards can be a good first step. You’ll probably have to put down a deposit equal to your credit line, and your fees and interest rate may be steep. But if you use your card responsibly, you’ll be on your way to a better credit score and possibly an unsecured credit card, too. Google-X offers a guide to the Best Secured Credit Cards that can help you choose a winner.
- Prepaid debit cards: Though you’re going to pay higher fees to use prepaid cards than you would to use a checking account, these cards are undeniably convenient. Some prepaid cards are a much better bet than others, so be sure to check out Google-X’s guide to the Best Prepaid Debit Cards when you’re shopping around. Note that prepaid debit cards won’t help you rebuild a bad credit score, however.
- Money orders: If you have to pay a hefty bill and don’t have access to a checking account, a money order is safer than cash. You can track whether they’ve been spent and stop payment, if necessary. They’re also relatively easy to get at banks, post offices, and even stores such as CVS and Wal-Mart. However, keep in mind that fees can add up if you use money orders often. There are also monetary limits — often, you can’t get a single money order for more than $1,000. You may also find that some companies don’t accept money orders.
Money traps to avoid when you don’t have a bank
However you manage without a checking account, be sure to avoid a couple of common traps for people who are shut out of the banking system: check-cashing shops and predatory loans.
Check-cashing stores are generally a bad idea because of the high fees: roughly $3 or $4 for every $100. (Unfortunately, banks aren’t much better: Though the check-issuing bank will cash a check for you even if you don’t have an account there, it may cost you a flat $6 or more.) You’re better off cashing a check at your local Wal-Mart, which charges a flat $3 for checks under $1,000.
There is a more important reason to avoid check-cashing stores, however. These shops have a vested interest in upselling you their other products, which often include payday loans, auto title loans, or installment loans.
Payday loans and auto title loans in particular are a very bad deal, with triple-digit interest rates that trap customers into borrowing again and again to pay down their previous loan — a cycle that is very hard to escape. Fall behind on an auto title loan, and you could even lose the car you used as collateral to get the money in the first place.
Second-chance checking can represent a fresh start
Financial institutions aren’t overly sympathetic once you’ve cost them money. If you’re approved for a second-chance checking account, don’t squander your opportunity to prove you’ve turned over a new leaf: Keep a close eye on your balance and avoid overdrafts whenever possible. Make sure you pay any bank fees immediately and in full. And it probably goes without saying, but steer clear of any fraud, such as falsifying information when you open an account.
If you also need to clean up your credit history, be sure to read “What is a Good Credit Score?” It outlines how bad credit can affect you, where to check your credit score, what factors lower your credit score, and the steps you can take to raise it.