Financial institutions look at banking history when deciding whether to let an applicant open a new bank account. For many applicants, denial is based upon previous accounts that were closed with balances owed, often due to built-up overdraft fees that were never paid. Unfortunately, just one instance of a closed bank account with a balance owed can cause someone to be denied a regular bank account for years.
Those without traditional bank accounts often turn to alternatives, but those alternatives tend to cost much more in fees and offer much less in terms of convenience. For example, one common banking alternative is prepaid debit cards, but these often come with expensive monthly fees that drain the balance. Moreover, most do not offer online account management or bill payment options.
How ChexSystems Works
ChexSystems is a consumer reporting agency that monitors banking history, including when consumers leave checking accounts unpaid due to overdraft fees. It works similar to a credit bureau, but exclusively for banking history. When an applicant applies for a checking account, most banks will make an inquiry with ChexSystems and, if negative history is reported, the applicant might be denied the ability to open an account there.
Examples of negative banking history include multiple unpaid overdraft fees, bounced checks, and accumulation of other banking fees. Depending upon the applicant’s history in ChexSystems and how stringent the requirements are at the financial institution where he or she is applying for an account, the new bank account application may be denied.
Second Chance Checking Accounts
Enter the concept of second chance checking accounts. These accounts are specifically designed for those with prior negative banking history, but they aren’t offered at every financial institution. A second chance checking account could be called many things: Alternate Checking, Foundation Checking, or Fresh Start Checking, just as examples.
These checking accounts typically come with more restrictions than a traditional checking account, such as the inability to overdraft, but they allow customers who are not used to banking or have a negative banking history to ease back into successfully maintaining a checking account.
Sometimes they will come with requirements such as minimum balances or monthly fees, but many financial institutions will allow customers to upgrade to regular checking accounts after a year or less of successfully maintaining a second chance checking account.
What to Look for in Second Chance Checking Accounts
Second chance checking accounts offer an opportunity for customers to redeem their banking history, but often at a cost. To find the best opportunity, look for an account that offers all or most of the following features: low or waived monthly service fee; high or no maximum transactions per month; access to a debit card and online banking; and low or no minimum balance requirements.
Sometimes a monthly fee can be waived if the customer agrees to keep a minimum monthly balance. If an account can’t be found that incorporates all of the above suggestions, decide on what is most important to your particular situation, such as online banking capabilities or debit card access, then compare fees across accounts that offer those features.
Where to Find Them
Second chance checking accounts are offered by several national banks, as well as state financial institutions and even neighborhood credit unions. National options include Easy Checking offered by BBVA Compass Bank, and Opportunity Checking offered by Wells Fargo. Both of these second chance checking accounts charge customers monthly service fees.
Sometimes monthly service fees can be waived. However, when that option is available, it usually requires the customer to keep a high monthly balance in the account. For example, Wells Fargo will waive the $10 monthly fee in its Opportunity Checking account, but the customer must meet certain requirements, including direct deposit and a $1,500 balance.
Even if there are no nearby branches of national chains offering these accounts, it’s worth asking around at smaller regional banks and credit unions. Many financial institutions don’t heavily advertise second chance checking accounts, but do make them available upon request. By visiting them in person or through their websites, it’s usually fairly easy to discern whether any particular bank has a program designed for those with poor banking history.
Mistakes on Your ChexSystems Report
Customers who have been turned down for a traditional checking account, yet don’t believe they have any accurate negative bank history, can request a free report from ChexSystems. Similar to credit reports from the major bureaus, ChexSystems provides one report per consumer free of charge every 12 months. A free report can be requested via an online form on its website, by mail, by phone, or by fax. If an error is found, it can be disputed similarly to a mistake on a credit report.