2017 Guide: How to Find the Best Bank Accounts when You have Bad Credit
Finding checking accounts for bad credit can be challenging, but a no credit check bank account can help put your credit – and your finances – back on track.
Those with a lowered or no credit score can certainly find themselves running into obstacles when trying to open up a bank account.
Many banks have begun to utilize a credit checking system before allowing new banking customers to open a checking or savings account. This can be incredibly aggravating and may even prevent you from opening an account altogether.
Bank accounts for bad credit bridge this gap by enabling those with little or no credit history to utilize checking and banking services.
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Checking accounts for bad credit are often specifically designed to benefit those with low credit scores, ultimately helping to improve overall credit.
Being able to open a checking account with bad credit can do wonders towards improving credit scores by creating a dependable financial history of paying utilities, credit cards, vehicle payments, and various other bills.
For this reason, checking accounts for bad credit can actually be great tools to use when trying to improve your overall credit score. Finding a great bank account shouldn’t need to require having a high credit score – and, in all actuality, it doesn’t.
A bad credit checking account can provide you with crucial banking benefits without suffering through checking account rejections.
Thankfully, there are a handful of great options to find bank accounts for bad credit. In order to open a checking account with bad credit, you simply need to know where to look. Online bank accounts have been instrumental in creating inclusive access for banking customers, with many providers offering online checking accounts for bad credit.
Still, online bank accounts are certainly not your only option; there are plenty of brick-and-mortar banks that are willing to offer bank accounts for bad credit.
Our review will take a thorough approach to finding checking accounts for bad credit, beginning with the basic questions that many consumers find themselves asking when looking to open a checking account with bad credit:
- Why would a bank need to check my credit score?
- How does ChexSystems factor into finding bank accounts for bad credit?
- What options are available for a no credit check bank account?
- How can I find the best bank accounts for bad credit?
Through taking these common questions into account, this review will aim to provide a thorough overview of exactly how to find bank accounts for bad credit. Not only will our review discuss the top-rated bank accounts for bad credit, but it will also serve as a guide to show consumers how to find the best checking accounts for bad credit to fit their own personal banking needs.
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Why Would a Bank Need to Check My Credit Score?
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A bank that issues a credit check can prohibit your ability to open a checking account with bad credit.
Many banks use a credit score to indicate whether or not a new customer will establish a positive or negative banking relationship. They want to see how you have handled your finances in the past and look for bankruptcy, fraud or identity theft as an indicator of your reliability as a banking customer. Ultimately, a credit score is an indication of whether or not you will cost them money as a banking customer.
Due to this risk-assessment, many banks will deny issuing checking accounts for bad credit individuals. As a result, it can be difficult to find bank accounts for bad credit.
The problem with denying new bank accounts due to a bad credit report is that a credit report isn’t always an accurate picture of your current finances. Even if you are actively working to improve your credit score, it takes a significant amount of time for your credit report to change. Depending on the lender, a resolved debt can take up to 90 days to show up on your credit report.
This is because the lenders on your credit report may operate on entirely different reporting schedules. Some larger lenders may send in updates once a month while many smaller lenders may operate on a quarterly schedule instead.
Regardless, even if you are taking steps to improve your credit, you may find that the 90-day reporting schedule and banks that perform credit checks are impeding your progress. While you wait for your credit score to improve, checking accounts for bad credit may become your best option to open a checking account with bad credit.
Not many consumers realize that there are actually two types of credit check systems that banks may employ to determine whether or not you are trying to open a checking account with bad credit.
In addition to using a traditional credit check through TransUnion or Equifax, banks may also utilize an additional method to deny checking accounts for bad credit reports. The banking industry has its own specialized system to check for credit scores within banks and credit unions, called ChexSystems.
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How Does ChexSystems Factor into Finding Bank Accounts for Bad Credit?
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Finding bank accounts for bad credit may mean staying far away from banks that utilize ChexSystems.
Being aware of what ChexSystems is – as well as what it does – can be incredibly useful when looking for bank accounts for bad credit. ChexSystems is a consumer reporting agency that operates much like a credit reporting agency. The difference is that ChexSystems focuses specifically on your checking and savings account history.
Most financial institutions will screen banking account applications by running information through ChexSystems. In fact, about 80% of all banks in the U.S. utilize ChexSystems when setting up new accounts. ChexSystems keeps a detailed history of every banking infraction that you have ever committed, which can include:
- Involuntary account closure
This is typically issued for severe causes, like theft or issuing a string of bad checks. Bank accounts for bad credit won’t hold these prior issues against a new bank account member.
- Bounced checks or overdrafts
While it may be acceptable to have a few overdraft instances, repeated overdraft charges can negatively affect your ability to open a checking account with bad credit.
- Unpaid negative balances
These are accounts that have been sitting in the negative for extended periods of time, eventually closing for either insufficient funds or drastic overdraft charges. Alternatively, a bad credit checking account is often marketed specifically toward consumers who have dealt with collections in the past.
- Inquiries
This applies to inquiries made by you, another bank, an employer or a creditor. Multiple inquiries can count negatively towards your ChexSystems report.
These negative banking infractions can remain on your ChexSystems report for 5 years. If you have had negative banking experiences in the past, it will certainly be difficult – and perhaps impossible in some cases – to open a checking account with bad credit through banks that utilize ChexSystems.
ChexSystems can use multiple means to issue a negative score, meaning that banks may have multiple reasons to turn away your application. For this reason, one of the biggest requirements to look for when searching for checking accounts for bad credit is finding a no credit check bank account that excludes ChexSystems, along with Equifax and TransUnion.
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What Options Are Available for a No Credit Check Bank Account?
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It is entirely possible to find a no credit check bank account – in fact, many banks have instituted new lines of banking products to specifically provide options which revolve around bank accounts for bad credit. When looking for banks that offer checking accounts for bad credit, there are two main options:
- Local and national banks that offer a “second chance” or no credit check bank account
- Online bank accounts that provide online checking accounts for bad credit
These are the best options to look for when searching for bank accounts for bad credit. Not only will these types of accounts help you avoid credit checks and ChexSystems reporting, but they will also provide a means to open a checking account with bad credit in order to re-establish and improve your overall credit score.
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“Second Chance” or Bad Credit Bank Accounts
There are nearly 17 million Americans who do not have a bank account. Many of these consumers go without bank accounts because it can be difficult to open a checking account with bad credit. An increasingly popular means for banks to reach this segment of consumers is through a no credit check bank account, called a “second chance” or bad credit bank account.
Unlike traditional checking and savings accounts, a second chance account is specifically manufactured to allow consumers to easily open a checking account with bad credit. There is no credit checking process, which means that these bad credit bank accounts don’t require ChexSystems either.
Bad credit can often go hand in hand with past negative banking experiences. Consumers who want bank accounts for bad credit may often find themselves confronted with past mistakes in their credit and banking history. A second chance or no credit check bank account is the best option for banking consumers who have low credit scores combined with negative banking experiences, like excessive overdraft fees or account closures.
While many second chance bank accounts don’t come with all the enhanced features of traditional checking accounts, they do offer a safe and effective means for consumers to open a checking account with bad credit and help build up their credit. Common features of this sort of bad credit bank account include:
- Lowered or zero monthly fees
- No minimum balance requirements
- Free debit card access and online bill payment
For example, Wells Fargo offers checking accounts for bad credit through its Opportunity Checking program. An Opportunity Checking account can be opened without a credit check and requires a minimum deposit of $50. Monthly fees amount to $10 each month.
The positive aspect of using second chance bank accounts for bad credit is that you can retain the traditional brick-and-mortar experience of visiting a branch location while avoiding credit checks. Consumers have the opportunity to establish a positive relationship with a bank while using checking accounts for bad credit.
Additionally, opening up a second chance bad credit checking account doesn’t have to be permanent. Most banks offer options to turn checking accounts for bad credit into traditional accounts after a trial period. For Wells Fargo, after a 12-month period of good standing, the Opportunity Checking program can be upgraded to a traditional program.
The Pathway Checking Account through Bank of the Ozarks is designed to be a bad credit checking account, helping banking consumers who have been turned away from other banks as a result of bad credit. This second chance account can be upgraded after 12 months of good standing.
One thing to keep in mind when looking for checking accounts for bad credit is that a second chance checking account is not the same as a free checking account. For example, bank accounts for bad credit through Woodforest National Bank can potentially come with 9 additional fees. A bad credit checking account through Bank of the Ozarks comes with a $0.50 fee for more than 15 online bill payments per month. Wells Fargo issues a $10 monthly fee for its Opportunity Checking accounts for bad credit.
A second chance or bad credit bank account certainly does make it easy to open a checking account with bad credit, but they may not be the most cost-effective option.
The second option consumers have when looking for checking accounts for bad credit is through online banking.
Online Checking Accounts for Bad Credit
Online bank accounts have been increasing in popularity, due to their convenience, wide array of services, and, most importantly, checking accounts without additional fees. Online bank accounts have also become increasingly worthwhile for their ability to provide checking accounts for bad credit.
Online banks typically offer additional benefits, compared to their traditional brick-and-mortar counterparts, including:
- No minimum balance requirements and no monthly maintenance fees
- Enhanced access and greater control over finances
- No credit check system required
While online banks certainly offer a great deal of additional benefits, the most important benefit is the wide availability of online checking accounts for bad credit. As online banking continuously refines its focus towards providing convenient, affordable services, consumers who are looking for bank accounts for bad credit can benefit from switching to online bank accounts.
For example, in 2014, Capital One announced that its Capital One 360 online checking account would no longer use ChexSystems as a method to verify credit. Although the Capital One 360 checking account is not directly advertised as a bad credit checking account, the elimination of credit checks certainly makes it a worthwhile option.
GoBank offers online checking accounts for bad credit through its basic no credit check bank account. Since GoBank does not issue a credit check, anyone is able to sign up for an account, regardless of past banking or credit history. Not only is signing up free, but deposits can be made either online through another bank or in any Walmart location.
Although online checking accounts eliminate face-to-face interaction through a branch, finding online checking accounts for bad credit can often be much easier and more convenient than second chance bank accounts.
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How Can I Find the Best Bank Accounts for Bad Credit?
Whether you decide to pursue second chance accounts or online bank accounts, there are a few general guidelines to follow when looking for bank accounts for bad credit. Finding checking accounts for bad credit will often involve the following elements:
- Know your credit score
Even when applying for bank accounts for bad credit, consumers should be aware of their credit score and how to progressively improve it. The best thing that you can do while looking for checking accounts for bad credit is to understand what factors are affecting your credit score. This will help you identify any incorrect information as well as provide opportunities for improvement while using bad credit bank accounts. Most experts recommend checking credit scores every 3–4 months.
Credit Karma offers 100% free credit scores as well as a wealth of helpful hints and guides towards improving your overall score.
- Look at your ChexSystems report
Consumers are allowed to request one ChexSystems report (free of charge) each year. Seeing your ChexSystems report can help determine if you need to look for a bad credit bank account. It can also give you the opportunity to find and dispute any errors, which can improve your banking credit.
- Do your research
Look to local banks and credit unions first to see if they have second chance banking options. Credit unions are typically much more likely to offer a no credit check bank account, although some larger banks may fall into this category too.
Understanding the process of opening bank accounts for bad credit is crucial. Make sure that you take the time to ensure that the bank does not perform a credit check or a ChexSystems analysis. Both of these are synonymous with “credit check” and will not quality as a no credit check bank account.
- Consider online bank accounts
Though online banking may be nontraditional, it can be a useful tool when looking for bank accounts for bad credit. Online banks are poised to provide maximum customer service, convenience, and affordability. This often translates into offering checking accounts for bad credit.
- When in doubt, ask questions
This is perhaps the most important key in finding bank accounts for bad credit. If you can’t seem to identify whether or not a bank is truly offering a no credit check bank account, then ask for additional details. Don’t hesitate to ask direct questions regarding credit check and ChexSystems policies.
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Conclusion
With the right knowledge, finding checking accounts for bad credit doesn’t have to be a stressful process.
While finding checking accounts for bad credit may take a little additional effort, the results are absolutely worthwhile. A bad credit checking account can enable consumers to enjoy the benefits of banking despite their current or past financial situation. Even with a low credit history, finding great bank accounts for bad credit is not out of reach.
As banks continue to offer “second chance” accounts, finding bad credit bank accounts will continue to get easier. Similarly, online bank accounts will remain competitive by offering their own versions of online checking accounts for bad credit.
Thankfully, no matter what avenue you choose, checking accounts for bad credit are readily available in the present, regardless of low credit scores or negative banking experiences in the past.
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