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Have your past financial mistakes made opening a new bank account difficult? Maybe you’ve had a few money missteps, like overdrawing your account or having a check bounce. Or maybe you’ve never even had a bank account before and don’t know where to start.
If any of this sounds familiar, second chance banking may be the solution to get your financial life back on track.
What is second-chance banking?
Second chance banking allows consumers to open new savings and checking accounts, even if their past financial behavior has made them less attractive to traditional banks and credit unions.
Typically, when you apply for a new account, the bank will review your credit using a reporting service called ChexSystems. This service collects information about your banking history. It’s similar to how credit bureaus track your credit history when you apply for loans or credit cards.
Your ChexSystems score may be low if you have a history of bounced checks, excessive overdrafts, or account closures. That may lead banks to deny your application.
With second chance banking, banks either won’t check your ChexSystem score or will approve you despite a low score. This allows you to access banking services — like a checking or savings account — and rebuild your financial reputation.
Not having access to a bank can be frustrating and expensive. Unbanked consumers often pay more for basic services, like paying bills or checking. Second chance banking is a lifeline for those who have struggled in the past, helping consumers get back on their feet.
Who can benefit from second chance banking?
Second chance banking is ideal for anyone who has had financial challenges in the past. This could include:
- People with a history of overdrafts or bounced checks
- Those who have had a bank account closed due to mismanagement
- Individuals with a poor credit score
- People who have never had a bank account before
- Those who have filed for bankruptcy
If you’ve had trouble qualifying for a traditional bank account, second chance banking could be a good option for you.
According to a 2021 Federal Deposit Insurance Corporation survey, 4.5% (or around 5.9 million) of U.S. households are unbanked, meaning they don’t have a checking or savings account. About 18.7 million (or 14.1%) households are underbanked, meaning they had bank accounts but relied on alternative financial products, like pawn shops or cash checking services.
How second chance banking works
Second chance accounts offer features similar to regular accounts, such as check writing and debit cards. However, they may have certain limitations or fees, including:
- Monthly fees: Some second chance accounts charge a monthly fee, while traditional accounts may not. Other fees can include ATM fees and overdraft fees.
- Transaction limits: Your account may restrict the number of monthly transactions you can make.
- Initial deposits: When you apply for a second chance bank account, the bank may ask for a small deposit to open the account. Some banks may require you to complete a financial education course before opening your account.
- Overdraft restrictions: Second chance accounts may limit your ability to overdraw your account to prevent further financial issues.
You can show financial responsibility by paying fees on time, maintaining the required minimum balance, and avoiding overdrafts and bounced checks.
Over time, your bank or credit union may allow you to upgrade to a traditional checking account with fewer restrictions and lower fees.
Another key benefit of second chance banking is the opportunity to rebuild your credit. Many second chance bank accounts report your account activity to the credit bureaus, which can help improve your credit score over time.
Benefits of second chance banking
Second chance banking provides an opportunity for people who may have been turned away from traditional banks to access essential financial services. Here are some advantages of using a second chance bank account.
Ability to use basic banking services
With a second chance bank account, you can enjoy the convenience of online banking, bill pay, and debit card usage.
Second chance bank accounts also offer lower-cost methods of sending and receiving money. Instead of relying on expensive alternatives like payday loans or check cashing services, you can manage your finances through a checking account with lower fees and better terms.
Pathway to traditional accounts
Using your second chance account responsibly can lead to an upgrade to a traditional checking or savings account. These accounts often come with more features and fewer fees, rewarding you for your improved financial management skills.
Opportunity to qualify for credit cards
Smart use of your second chance account may also make you eligible for a credit card from your bank. Making regular, on-time credit card payments can build a strong credit score, which is crucial for accessing loans with better terms.
Access to financial education
Many second chance bank accounts offer resources to help you manage your money and avoid future financial missteps.
Choosing the best second chance bank account for you
When selecting a second chance banking account, consider the following factors:
- Fees: Look for banks with low or no monthly fees for second chance accounts. Fees vary but are usually under $10. Some financial institutions even charge no monthly fees for second chance accounts.
- Minimum opening deposits: Choose a bank with a low or no minimum opening deposit requirement.
- Minimum daily balance: Ensure you can comfortably maintain any required minimum daily balance.
- ATM and debit card access: Opt for banks with a wide network of ATMs and low out-of-network ATM fees.
The best second chance bank accounts
If you’re considering opening a second chance bank account, here are a few of the best options available. None of these accounts use ChexSystems to approve you for an account.
- Chime Second Chance Banking: Chime offers a second chance checking account and savings account with no hidden fees, no minimum balance requirements, and a free debit card. You can also earn 2.00% APY on funds in your Chime Savings Account. Other features include early direct deposit, automatic savings tools, and a fee-free network of 60,000+ ATMs.
- Wells Fargo Clear Access Banking Account: This account is designed for people who have had trouble with traditional banking. It comes with a debit card, online banking, and bill pay. You’ll need $25 to open an account, but there’s no minimum daily balance requirement. There’s a $5 monthly service fee that can be waived if certain conditions are met.
- Varo Online Bank Account: This account has no fees and requires no minimum daily balances. Other features include early payday, an instant-access debit card, and a fee-free network of 40,000+ ATMs. You might also qualify for a Varo savings account that pays 5% APY on up to $5,000 in your account and 3% APY on any dollars above that amount.
- LendingClub Rewards Checking: This second chance bank account has a free debit card, online and mobile banking, and no minimum balance requirement. You’ll also earn unlimited 1% cash back on all debit card purchases and unlimited ATM fee rebates. LendingClub also offers free financial education resources to help you better manage your money.
The bottom line
Second chance banking is a valuable chance for those who have struggled with financial challenges in the past. By offering access to banking services and helping you rebuild your financial reputation, second chance accounts can lead you to a brighter financial future.
Remember, smartly using your second chance account is key to improving your financial health. By making timely payments, avoiding overdrafts, and maintaining the required minimum balance, you can show your commitment to smarter money management.
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