It’s not a given that anyone can open a regular checking account. About 7.7% of American households, or almost 17 million people, are unbanked, and part of the reason involves having bad credit or poor banking histories.
Making mistakes with a bank account, such as not paying overdraft fees, can put you on a list to let other banks know you’re a risky customer, and you might be denied an account because of it.
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When people apply to open checking accounts, financial institutions screen them to determine how much of a risk they’ll be. About 85% of banks and credit unions in the United States use ChexSystems, a consumer reporting agency that gathers information on closed checking and savings accounts. Consumers with outstanding debts or overdrafts, fraudsters and victims of identity theft may have records on ChexSystems.
When a person with a ChexSystems record tries to open a checking account, it’s up to the financial institution to determine whether to approve that account. ChexSystems reports may or may not be used, as can credit reports.
When people cannot get bank accounts, their alternatives tend to be prepaid debit cards, payday loans, and check-cashing services, which aren’t always ideal because of transaction fees. They can also be much less convenient, since they may lack features such as online access to funds.
A second chance checking account, however, offers the security of a bank account while letting a consumer rebuild his or her banking history. After a year or two, an account holder may be able to upgrade to a regular checking account.
Unfortunately, some major banks don’t offer second chance checking, but many community banks and credit unions have them under various names, such as Opportunity Checking and Fresh Start Checking.
Some banks and credit unions offer so-called second chance checking accounts to help people rebuild their credit and financial histories. These accounts usually carry monthly fees and come with a few other requirements, such as participating in a financial literacy or money management class. An account holder might also not be eligible for overdraft protection, since second chance banking serves as a way to prevent overdrawing an account altogether.
Here’s an overview of these accounts and where you can find them at branches in your area.