Whether it’s angling the perfect shot in a game of pool or telling a crush how you really feel, everyone wishes they could have a second chance from time to time—and money matters are no exception. Sometimes in life, things just … happen. And sometimes, those circumstances can wreak havoc on our personal finances in a lasting way.
You probably already know that bureaus like Experian, TransUnion, and Equifax track your credit history. But you might not know that consumer reporting agencies track your banking history, too. And in the same way that having a poor credit history can hurt your chances of receiving credit in the future, having a poor checking history can make it harder to get a bank account.
There is a product on the market for folks who have a less-than-perfect track record with banking—in fact, there are several options. Read on to learn all about second chance bank accounts: what they are, how they work, and where to find one if you need one.
Who Is a Second Chance Account For?
Before we define second chance checking accounts, let’s take a step back and talk about why they exist in the first place. Let’s talk about ChexSystems.
ChexSystems is like the banking equivalent of a credit bureau. It catalogs information on consumers’ banking histories, including basics like name, contact information and Social Security number, as well as information on account closures, bounced checks and overdrafts, unpaid balances, suspected fraud, and more.
When a customer applies for a new checking account at a bank or credit union, the institution may look up the ChexSystem report to determine whether or not it’s willing to extend its services. Negative report items—such as unpaid overdrafts, involuntary account closures, or a high number of recent inquiries—can cause a bank to refuse regular checking services to the client.
That’s where second-account checking comes in. A second-chance bank account is one where the bank offering the account is willing to overlook a less-than-stellar banking history so clients can continue to use a bank account while rebuilding their ChexSystem report.
While this type of account isn’t available at all banks, it is available at many, including some major nationwide institutions like BBVA and Wells Fargo.
What’s more, lots of online-only banks are also offering free checking accounts that don’t pull a ChexSystems report as part of the application process, such as Chime, Radius, and Varo.
In other words, an imperfect banking history doesn’t have to mean living an unbanked existence—which is good news, as we live in an increasingly cashless world.
How Does a Second Chance Account Work?
A second chance checking account works much like any other regular checking account: The account holder deposits money into the account, which they can then access using a debit card or pull out at the ATM.
Specific account features will depend on which institution is offering the account; for example, some banks may offer free paper checks or convenient mobile banking to give customers a bird’s-eye view of their finances.
On the other hand, some banks may impose monthly service fees or minimum opening deposits, and may not allow second chance checking account holders to use paper checks. And although checking account interest rates are notoriously low, it’s unlikely your second chance checking account will grow any interest at all.
That’s why, as when opening any other kind of bank account, it’s important to review the fine print closely to ensure you know what you’re getting into before you apply. If you need to use paper checks to pay rent, for example, an account where they’re not allowed won’t work—and there are other accounts available that will offer the service you need.
Applying for one of these accounts works similarly to opening a free checking account: the bank will ask for a variety of personal information, and you may be asked to verify your identity with a form of official identification like a driver’s license or Social Security card.
These days, these applications can usually be done entirely online. Depending on the institution, you may be required to put down a minimum initial deposit, but in many cases, the account will be 100% free; it may take a few business days to process your application, and then you’re in!
Once you’ve opened a second chance checking account, you can use it as normal to pay bills, restaurant tabs, and grocery store totals—whatever expenses come up in your day-to-day life. Meanwhile, the negative items that might be on your ChexSystems report will slowly vanish. Most records fall off after five years.
Consumers also have the right, under the Fair and Accurate Credit Transaction Act, to request a free ChexSystem report once a year. A request can be made by phone, mail, fax, or online form, allowing review of the report for any incorrect negative items and disputing them.
Dispute investigations are generally complete in a month, at which point the reportee will receive a letter in the mail notifying them of the results.
Thus, over time, it’s possible to clean up a ChexSystems record—which can unlock the ability to pursue other types of banking services, including high-interest deposit accounts.
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Pros and Cons of a Second Chance Account
While second chance checking accounts do provide a valuable service to those who would otherwise be unable to find banking services, there are some drawbacks to these accounts as well. Here are the pros and cons of second chance checking accounts.
• Allows clients to use a checking account even without perfect banking history.
• Gives account holders time to rebuild their banking history and let items fall off their ChexSystems report.
• In many cases, second chance checking accounts are free and don’t require a minimum opening deposit.
• Some accounts may assess monthly fees and minimum opening deposits—and may not offer waivers.
• The account may have limited capabilities (such as an inability to use paper checks or to access overdraft protection).
• The account is unlikely to offer interest growth on account balances.
Alternatives to Second Chance Accounts
Second chance checking accounts are a solid option for those who might not be able to open a traditional checking account because of their banking history. But they’re not the only alternative.
For example, many banks offer prepaid debit cards that can be used to pay bills and other expenses without using cash. It works like a gift card: Clients load the card with a certain amount of money, which they can then use as they see fit. The cards are aso reloadable, making them a fair option for working around the handicap of not having a bank account.
What’s more, many prepaid debit cards don’t require a credit check to open, which makes them a viable choice for folks with poor credit histories as well as poor ChexSystems reports.
That said, prepaid debit cards often include a variety of fees—such as monthly maintenance fees, activation fees, and reloading fees—which can eat into the user’s balance and make them unsustainable for long-term use.
Others who find themselves unbanked might try to simply pay their way through life using cash; after all, you can get a paycheck cashed at the nearest major grocery store or Walmart, though the check-cashing services generally come with a fee.
Plus, many utility companies, landlords, and other bill collectors don’t accept cash as payment. And if your cash is lost or stolen, there’s no reliable way to get it back. It’s gone.
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SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC . Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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