It is usually easier to qualify for a bank account than a loan or a credit card. However, if you have negative items in your banking history, you may have trouble opening an account. If you have been turned away from traditional banks, bank accounts for bad credit may be a good option.
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Reasons People Need Bank Accounts for Bad Credit
When you apply for a loan or credit card, the bank considers your credit score. When you apply for a checking account, the bank primarily considers your banking history. Many banks use consumer reporting agencies, such as ChexSystems, Telecheck, or Early Warning Services to get information about your past checking and savings accounts.
If you have negative activity, such as unpaid overdraft balances, bounced checks, debit card abuse, or applying for a lot of accounts in a short period, a bank may decide to deny your application.
What To Do If You Have Been Denied a Checking Account
Being turned down for a checking account can be distressing, but there are steps you can take.
Ask the Bank To Reconsider
Most banks use automated systems to determine who qualifies for an account. If you are working with a local bank, you can ask them to reconsider your application. You may have more success if your checking issues are in the past and you can demonstrate your recent financial history is positive.
Get Your Report and Check It for Errors
You can request a free copy of the report your bank used to make its decision whenever you are denied a bank account. Ask for a copy and review it for errors. If you find any errors, report them to the consumer reporting agency.
Improve Your Banking History
Contact any institutions that have reported negative items to find out if you can get them removed by paying off outstanding fees. If not, the information will automatically come off your report in five years.
Apply for Bank Accounts for Bad Credit
It may take a while to improve your banking history enough to get a traditional account. In the meantime, obtaining a bad credit account can help you build a positive history and provide you with checking options.
How To Choose Bank Accounts for Bad Credit
Because the main reason people with bad credit are turned down for bank accounts is negative items in their banking history, the key to finding a bank account when you have bad credit is to look for banks that either does not check banking history or offer accounts specifically for customers who do not qualify for a traditional account.
Banks That Don’t Do a Credit Check
Some banks don’t check your banking history when evaluating your application. However, some of them may do a soft credit pull. If you have been blacklisted by one of the consumer reporting agencies that report banking history, one of these banks may be a good option for you. Because of the higher risk involved, these banks may charge higher fees than other banks.
Second Chance Checking Accounts
Some banks offer bank accounts for bad credit specifically for customers who have been denied a traditional checking account. These second chance accounts often do not include many of the services that standard checking accounts have but can help you build a positive banking history that may enable you to qualify for a traditional account in the future.
Advantages of Second Chance Checking Accounts
The main advantage is that a second chance account makes it possible for people with bad credit to have a checking account when they might otherwise not be able to get one. These accounts are usually less expensive and more convenient to use than alternatives such as prepaid debit cards or check-cashing services.
Having a checking account enables customers to take advantage of services such as receiving their paycheck through direct deposit and makes it easier to qualify for credit. Many banks that offer these accounts allow customers to convert their second chance accounts to regular accounts after six months to one year of use without any negative balances or fees.
Disadvantages of Second Chance Checking Accounts
Many bank accounts for bad credit come with monthly fees that you cannot get waived. There may also be requirements, such as setting up a regular direct deposit or taking a money management class. These accounts usually do not offer any kind of overdraft protection because proving that you can manage a checking account without overdrawing is part of improving your banking history so you can get a regular account.
What To Look for in a Second Chance Account
There are several features to look for in the best second chance accounts:
- No minimum balance requirement
- Low monthly fees
- Few restrictions, such as maximum transaction amounts
- Extra services, such as online bill pay, debit cards, and unlimited check writing
Some bank accounts for bad credit come with high fees and limited features. Research the costs and features offered before you apply. Investigate what your options are for accessing your money. Some second chance banks do not have local ATM access. Instead, you may have to visit a retail store or pay a fee to access cash.
Few major banks offer second chance accounts. However, some community banks and credit unions have programs for people with bad credit. Additionally, there are a few nationwide options that are either online banks or services backed by banks, such as Chime, Green Dot, and LendingClub.
BankOn Program
The Cities for Financial Empowerment Fund administers the BankOn program. This program works with national and regional financial institutions to make safe, low-cost bank accounts for bad credit available to customers who do not have access to traditional checking accounts.
Because financial institutions participating in this program must adhere to a set of standards, accounts with these banks may have lower fees, better access, and more features than second chance or no credit check accounts.
Fiscal Tiger Can Help You With Bank Accounts for Bad Credit
Fiscal Tiger features a variety of resources that can help customers seeking bank accounts for bad credit with credit repair, budgeting, debt, and more. Visit us online to get started.
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