You need to open a bank account but you’ve had but you have a negative banking or credit history. If this sounds like you, do not worry—you can still apply for and open a bank account. In fact, getting a reputable bank account is often a first step in rebuilding your financial standing.
The good news for people who are ready to put their financial lives back on track: not all banking institutions run a bank history check, and others allow you to open a bank account with negative banking history, offering what’s known as second-chance checking accounts.
Some banks want to learn about your banking history before establishing an account with you. Some institutions may check your credit report, which would reveal if there is any bankruptcy, fraud, or identity theft on your report.
However, most typically run a different kind of credit check—a bank history check. The most well-known verification service is ChexSystems. Rather than focusing on your credit card, loan, or mortgage history (which is part of your credit report), your bank history report shows your previous checking account history, such as if you closed a bank account without paying fees or have an overdrawn bank account and never paid up.
If the report shows you have a long history of bad checks, overdrafts, unpaid negative balances, excessive withdrawals, and account freezes, the banking institution could refuse to open a new account.
If you are applying for a line of credit or a loan from a bank, then they will likely check your actual credit history and/or score.
If you have been denied a bank account for negative banking history or are concerned you might be, you can request a free copy of your ChexSystems report. If there are errors, you can dispute them.
If you have a poor bank history report, try to fix the issues. For example, if you have overdue accounts or collections notices, call the bank listed to find out if you can still pay them back. If they will allow you to do this, you can then ask if they will remove their negative reports.
You can also find a bank account that won’t check your past banking history.
You can open a bank account at a banking institution that won’t limit you by your banking history, such as here at Varo. Other banking institutions my not use ChexSystems, or they access the reports but don’t make their decisions based solely on the information. Also, some banks offer second-chance accounts for those who don’t qualify for regular checking.
However, many of these second chance bank accounts have rules that you’ll need to adhere to, such as maintaining a minimum balance in your account or making a certain number of direct deposits each month. Second-chance accounts also may have higher monthly fees that can’t be waived, fewer services, and more limitations than standard checking accounts.
That’s why it’s important to understand and evaluate your options.
The primary consideration when opening a bank account with bad credit or a second chance account should be bank fees. The best bank accounts come with:
It’s also important to make sure the financial institution is reputable. Stick with a bank account that’s insured by the Federal Deposit Insurance Corporation.
Not all bank accounts have these features. Some second-chance checking accounts may not issue debit cards or checks. Others may charge monthly fees and overdraft fees. Still others may have a minimum balance requirement.
At Varo, we don’t charge a monthly banking fee or overdraft fees or require a minimum balance. We understand that everyone makes mistakes from time to time, and it can be hard to get ahead with your finances when you still have to pay for your past mistakes.
The good news is, negative information doesn’t stay on your bank history record forever. ChexSystems says information can stay on one of its reports for five years.
To avoid banking problems in the future, pay attention to your checking account. Maintain the required minimum balance, avoid overdraft fees and negative balances, and use your account responsibly. If you focus on maintaining good financial habits, eventually, the good will outrun the bad.
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