A checking account gives you a safe place to store your money in addition to providing you with convenient features such as online banking. Banks want to protect themselves from the financial losses they incur when consumers accrue high overdraft charges on their bank accounts and fail to repay their debts. Thus, most banks will require you to submit to a credit check prior to granting you a new checking account. If you have bad credit, this can be a deal breaker. Fortunately, there are banks out there that offer special checking accounts for individuals with bad credit.
See: Bank Overdraft Fees and Credit Reporting
Second Chance Checking Programs for Bad Credit
Second chance checking programs are specifically designed to help those with bad credit or those who have a debt in Chexsystems. These checking accounts are often basic and lack all of the bells and whistles that standard checking accounts have, but they do offer individuals with poor credit the opportunity to open a new checking account without worrying that their bad credit rating will result in a denial of their application. Some second chance checking programs don’t require a credit check.
Demonstrating responsibility with a second chance checking account can be extremely beneficial if your goal is to obtain a traditional bank account. Some banks use second chance checking accounts to evaluate those with bad credit before offering them a standard checking account. Thus, a bad credit checking account at some banks is nothing more than a “trial run” to determine whether your debt management skills merit a standard bank account.
Banks That Offer Bad Credit Checking Accounts
Although second chance checking accounts may be hard to come by, some banks don’t actively advertise their available programs. The FDIC estimates that 37% of all banks offer special financial outreach programs to individuals who are not eligible for a standard checking account.
The following banks all offer checking accounts to individuals with bad credit.
- Bank of America
- Household Bank
- BBVA Compass Bank
- Transportation Alliance Bank
- Bank of Texas
- Woodforest National Bank
Potential Drawbacks of Bad Credit Checking Accounts
Bad credit checking accounts often carry higher fees than standard checking accounts due to the higher risk individuals with poor credit present to banks. In addition, some second chance checking accounts are only available online. Because of this, the deposits that consumers make must often be mailed to the bank’s headquarters and then deposited--resulting in as significant delay in the availability of funds.
Still other bad credit checking accounts place limitations on how the account may be used. For example, some banks don’t allow individuals enrolled in second chance checking programs to write checks from their accounts. If the bank doesn’t have numerous branches, restricting an individual to only using his debit card may result in the individual accruing multiple fees using the ATM services of other banks.
Second Chance Banking is Only Temporary
Second chance banking programs may cost a consumer more in fees or place restrictions on his banking activities, but, for most consumers with poor credit, having a restricted checking account is far preferable to not having one at all.
See: Techniques to Build Good Credit Fast
Fortunately, credit scores change over time. Most credit report entries only remain on file for seven years before dropping off a credit report. Once a debt no longer appears on a consumer’s credit report, it has no effect on his credit score. As long as a consumer pays his debts on times and monitors his credit reports for errors, he can gradually build the good credit he needs to be approved for a standard free checking account.
Source:
New York City Department of Consumer Affairs: Checking Accounts
FDIC Survey of Banks' Efforts to Serve the Unbanked and Underbanked
Candice Edwards - Candice Gillingwater is a credit specialist and consumer advocate currently living in Georgia. Her goal is to educate the public about ...
