What Is Second Chance Banking?
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Having a proper checking account is important for being able to manage your money and store it safely. However, for those who have been denied a new checking account, things can quickly go from bad to worse.
If you’re having trouble getting a regular checking account, a second chance bank like CIT Bank may be the one for you. A second chance checking account can offer you many of the same benefits of a regular checking account while you get your finances back on track.
Why Was I Denied For A Checking Account?
There can be many reasons why a bank will deny you from a new checking account. Most of them have to do with your past banking history.
For example, you may have had multiple overdrafts, failed to maintain a minimum balance, or tried to close an account with a negative balance. Any of these issues with any major bank in the U.S. can affect your ability to open a new checking account.
This is because your banking history is tracked by three reporting agencies: ChexSystems, Early Warning Services, and TeleCheck. When you try to open a new account, the bank will check your information against databases maintained by these three agencies. They will deny customers that are considered too high-risk.
What is ChexSystems?
ChexSystems is a consumer reporting agency that keeps track of your checking and savings account activity.
Similar to a credit score, ChexSystems takes different factors from your banking history into account to calculate a “banking score,” known as your ChexSystems Consumer Score. This score ranges from 100 to 899, where a higher score means you’re at a lower risk to banks.
When you apply for a new checking account, the bank may request to see your ChexSystems Consumer Score and ChexSystems report. If your score is too low, or your report has too many bad marks, you may be denied. Examples of bad marks on a ChexSystems report include:
- Bounced checks & check writing history
- Non-sufficient funds fees
- Outstanding debts
- Fraudulent activity
- Information about closed accounts
Any bad marks will stay on your ChexSystems report for five years. You can request a free copy of your ChexSystems report here. If you find any errors on your report, you have the right to dispute them with ChexSystems.
What is Early Warning Services (EWS)?
Early Warning Services (EWS) is another consumer reporting agency with a focus on detecting fraud. It is co-owned by Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank, and Wells Fargo.
When an institution is trying to decide whether to open a new checking account or accept a check, they may use information from Early Warning. If you’re found to be high-risk, your account application or check may be denied.
Once every 12 months, you can request a free copy of your EWS report here. Bad marks typically stay on your EWS report for seven years. As with ChexSystems, you can dispute any errors you find on your report with Early Warning.
What is TeleCheck?
TeleCheck is the third major consumer reporting agency banks refer to when considering new checking accounts. Your TeleCheck report will contain much of the same information as the other two agencies.
TeleCheck is most often used when you pay a merchant by check. If TeleCheck approves the transaction, the merchant will have no problems accepting the check. Otherwise, you may get a decline code which you can look up on TeleCheck’s website for more details on why your check was bounced.
As with ChexSystems and EWS, you can request a free copy of your TeleCheck report and dispute any errors you find.
What Are Second Chance Checking Accounts?
Banks that offer second chance checking accounts acknowledge that you may have had banking problems in the past. These banks will still use ChexSystems, EWS, and TeleCheck to view your banking history just like other banks.
However, unless you owe the bank money, they will let you open a checking account with them anyway, hence the name “second chance” checking account.
We highly recommend opening a second chance checking account if you are unable to get a standard checking account.
Second Chance Banking vs. Non-ChexSystems Banking
It’s important to note that there’s a difference between a second chance bank account and a non-ChexSystems bank account. Second chance banks still use ChexSystems--they’re just willing to overlook your history and give you an account anyway.
On the other hand, a non-ChexSystems bank will not be aware of any bad marks you may have on your ChexSystems report. The catch is that such banks are rare. If you’re lucky enough to find one, you may be able to open a standard checking account with them.
However, even if you are able to build up a positive banking history with a non-ChexSystems bank, other ChexSystems banks will be unaware of this. Practically, going for a second chance banking account is the right choice for most people.
Second Chance Checking Account vs. Standard Checking Account
A second chance checking account has the same basic functions as a standard checking account. This includes the ability to deposit and withdraw money, and a free debit card.
However, second chance checking accounts usually have more limitations. For example, there might be a lower limit on how much you are allowed to withdraw in a day. They may also have a maximum spending limit per transaction.
What To Look For In A Second Chance Checking Account
A good second chance checking account should have the following qualities:
- Low or no monthly fees ($10/month or below is considered reasonable)
- Free debit card
- No overdraft fees--the transaction will be denied if you have insufficient funds
- Ability to write checks
- Ability to upgrade to standard checking account after months of good standing
In addition to having low monthly fees, the best second chance checking accounts waive this fee if you hit a certain deposit amount per month. Avoid banks that charge extra fees for things such as paper statements or account inactivity.
Who Needs A Second Chance Checking Account?
Anyone who does not have a standard checking account due to being rejected multiple times should definitely get a second chance checking account. This will allow you to build up a positive banking history.
A checking account is still one of the safest places to keep your money. Most second chance banks are FDIC-insured, meaning they’ll protect up to $250,000 of your money. This is much safer than, say, keeping your money in cash hidden in a safe.
Frequently Asked Questions About Second Chance Banking
For those wondering about second chance banking, here are some commonly asked questions and their answers.
Any reputable bank will have you fill out an application to open a second chance checking account. Typically, you’ll also need to have the following ready:
- Your Social Security Number (SSN)
- Proof of U.S. citizenship and residency
- Driver’s license or other U.S. issued ID
- Your address
- Initial deposit, if necessary
For most banks, the application is immediately processed. You won’t need to visit a physical bank to open an account.
Usually, you will be accepted for a second chance account right away. However, there is a small chance that you will be rejected, either because you don’t meet the specific requirements of the bank, or you may have too much negative history with them.
If you’re denied by one bank, try applying for a second chance account at another bank. In most cases, you’ll be able to find one bank that’s willing to open an account for you.
If you’re unable to open a second chance account, you still have other options. These include prepaid debit cards, secured credit cards, and online e-wallets. We’ll talk more about each of these at the end of the article.
Many second chance accounts do require an initial deposit, although some do not. Most second chance banks do not have a minimum balance requirement. Be sure to check both of these with your bank and avoid those with initial deposits and minimum balance requirements that are too high.
Many second chance accounts have monthly fees, although some do not. It’s reasonable for a second chance checking account to have a monthly fee of $10 or below. We recommend avoiding accounts with a monthly fee of $15 or more.
Not every bank operates in all 50 U.S. states. Certain banks may have restrictions on where customers can open accounts. However, most of the major banks (such as Wells Fargo, U.S. Bank, etc.) do allow applicants from anywhere in the U.S.
Top Second Chance Banking Options
If you’re looking for a good second chance banking account, here are our top picks.
CIT Bank is an online-only bank that was founded in 2011. They offer very competitive interest rates: you’ll earn 0.10% APY on your eChecking account and 0.40% APY on the Savings Builder account. Both of these rates are multiple times the national average.
While you’ll need a minimum deposit of $100 to open the account, there are no monthly fees, which is a huge plus. CIT Bank also doesn’t charge ATM fees or transfer fees.
In short, CIT Bank does not charge many of the fees that other second chance accounts do. The only tradeoff is a slightly higher initial deposit.
Chime is another online-only bank that actually doesn’t use ChexSystems. They are perfect for people looking to repair their banking and credit history, since they tend to accept all applicants.
Chime’s most attractive selling point is the fact that there are no monthly fees or minimum deposit requirements. In addition, they have a handy mobile app which you can use to access your banking from anywhere.
However, it might be inconvenient to make cash deposits into your Chime account. You’ll need to go to retail locations like Walmart, Walgreens, or 7-Eleven and ask the cashier to make a deposit for you. Direct deposit and mobile check deposit are still possible from the mobile app.
Chime is a perfect option for people with poor banking history, since many of the usual fees are avoided. It’s also great if you are currently paid by your job via direct deposit.
Alternatives To Second Chance Banking
If you cannot secure a second chance account or don’t want to get one, you still have some other options. Note that we still recommend that you get a second chance checking account if possible.
Prepaid Debit Cards
A prepaid debit card is very similar to a regular debit card, but it’s not attached to a bank account. Instead of depositing money into a bank account at an ATM, you can add money to your prepaid debit card at retail stores like Walmart, Walgreens, or online.
The main negative of prepaid debit cards is the extra fees. You’ll usually have to pay a monthly maintenance fee, along with potential fees every time you add money to it. These fees are easily avoided with the two second chance banking accounts we recommended above.
Secured Credit Cards
Credit unions and repair agencies may offer ways for you to get a secured credit card as a means to help improve your credit score.
Your credit limit on a secured credit card is equal to the amount you initially deposit. For example, the First Progress Platinum Select Mastercard Secured Credit Card requires a minimum deposit of $200. If you deposited $300, your credit limit is $300. You would then have to pay off the card every month similar to a regular credit card. Over a longer period of time, provided you paid off the card every month, you’ll get your deposit back.
A secured credit card is a great option for those looking to build credit and eventually apply for a regular credit card. However, a second chance account is still a better option for those simply looking to build up banking history.
Online e-wallets are becoming more and more common. These function as online debit accounts that let you deposit and withdraw funds, as well as pay online.
Some services like PayPal even offer a debit card--the PayPal Cash Card. This debit card is directly linked to your PayPal balance, and you can even use the card at ATMs fee-free. The PayPal Cash Card also has no monthly fees or minimum balance requirements.
However, not all online e-wallets should be trusted. Exercise caution and do your research before using these services.
Conclusion and Next Steps
Second chance banking is a chance for those with a poor banking history to get back on track financially. After many months of positive history with a second chance account, banks will recognize this and offer you opportunities to apply for standard checking accounts again.
If you’re in need of a second chance with the banks, we highly recommend checking out CIT Bank or Chime. They offer competitive second chance accounts that can help you rebuild your banking history on the right foot.
When doing research, Credit Help Info relies on credible and authoritative sites. These research sources are provided so that you can see exactly where we get our information.
About the Author
Chris Morgan is a credit expert, who has been featured in Addition Financial, GOBankingRates, MSN Money, Yahoo Finance, and many other publications. He has read hundreds of books and resources on finance and the credit industry. Because he did this, you don’t have to. As a school teacher for over 20 years, Chris enjoys taking complicated material and breaking it down into manageable information that’s easy to understand.