A second chance checking account is a basic version of the regular checking account. Account holders can perform regular banking activities like saving, withdrawing, and online banking. However, they may not have access to other services that standard account holders do. Second chance accounts also have significantly lower spending limits.
Due to banking mistakes and a bad history with ChexSystems, people often get precluded from opening new bank accounts. If this happens to you, you miss out on basic banking services and you get no chance to rebuild your banking history. With a second chance checking account, you’re provided with a new opportunity to start afresh and do things better.
Who Needs a Second Chance Checking Account?
Whenever you give out a bad check, fail to pay account fees, or get a negative balance, your bank sends a report to ChexSystems, the banking industry’s consumer reporting agency. ChexSystems keeps the banking histories of everyone that holds a checking or a savings account. If you mismanage your bank account consistently, ChexSystems may blacklist you, making it difficult to open a bank account for up to 5 years.
According to reports, over 80% of banks and credit unions use ChexSystems or similar warning services to screen new applicants. If you have a bad history, it becomes very hard to get approved for a new bank account. If ChexSystems has you blacklisted, getting a second chance checking account is your best bet.
People with bad credit may also find it difficult to open standard bank accounts because a bank may request an applicants’ credit report in addition to a report from ChexSystems. Yes, your credit score has more to do with loans and credit cards than with bank accounts. However, if your checking account is connected with a credit account, banking mistakes will reflect on your credit report. Also, if you have bad credit, chances are high that you have overdrawn your checking account or written a couple of bad checks sometime in the past. Like credit card issuers, banks also do not like risky prospects.
Features of a Second Chance Checking Account
If you can’t open a checking account, a second chance account affords you exactly that: a second chance. The financial institutions that offer this service know that applicants may have bad banking histories or low credit scores. As a result, they reduce some of the requirements needed to open an account. To protect themselves, however, the accounts have limited features. They are listed below:
With second chance checking accounts, customers can only leverage essential banking activities. Overdrafts or overdraft transfers are not allowed, customers can’t write checks, and there are lower limits for debits and withdrawals.
Monthly fees are charged on the account, but they’re lower than those deducted from standard checking accounts. Unlike standard accounts, however, the fees are never waived. So, second chance checking account holders pay lower but unavoidable fees.
Second chance checking accounts restrict customers from overcharging their accounts. Since there’s no overdraft protection, any transactions that exceed your balance are automatically rejected. In essence, the bank helps you avoid overspending by removing your ability to do so.
Similarly, the accounts come with lower ATM withdrawal limits. You can’t withdraw more than a certain amount per day, and you can only withdraw as much funds as you have in your account.
Second chance checking account holders cannot write checks. Bounced checks are a common banking mistake because of how easy it is to lose track of how much you have left in your account. You send out checks, they get bounced and it goes in your ChexSystems history. By restricting customers from writing checks, the banks help them avoid overdrawing and building up negative reports.
Second chance checking accounts are designed to ensure responsible customer behavior. Responsible banking ensures that you never get flagged by ChexSystems, making it easier to open a standard account after some time. Also, some of the features are designed that way to help the bank find a balance between meeting customers’ banking needs and reducing its risk exposure.
If you maintain good banking practices on your second chance checking account for up to a year, some banks will allow you upgrade to a regular checking account.
Things to Keep in Mind Before Opening a Second Chance Account
There are some points to keep in mind before applying for a second chance checking account. Some of the most important ones are listed below:
Second chance checking accounts often have requirements that aren’t asked of standard account applicants. For example, you may be asked to complete a money management course beforehand.
While they help you improve your history with ChexSystems and improve your chances of opening a standard checking account in the future, second chance accounts have no impact on credit scores. If you want to raise your credit score, consider opening a secured credit card account.
Common alternatives to second chance checking accounts are check-cashing services and prepaid debit cards. However, these options often come with higher transaction fees and have high balance requirements. They also lack online banking, a common feature of second chance accounts.
Which Banks Offer Second Chance Checking
For now, Wells Fargo is the only national bank to publicly announce that it offers second chance checking to customers with bad banking histories. Many other big banks allow customers to open checking accounts with basic features. However, their requirements (and the service) is not advertised to the public. To see if you qualify, visit the bank and make some inquiries.
Many community and regional banks offer second chance checking accounts and those that don’t are often willing to work with you to create a mutually beneficial arrangement. Credit unions also offer second chance checking accounts and their requirements may not be as strict as those from banks.