What is Second Chance Banking?

Second-chance banking refers to bank accounts available if you can’t qualify for traditional banking services, sometimes related to past issues managing an account.

A disproportionate number of people from minority or low-income communities have trouble accessing traditional banking services.¹ Second-chance banking gives them just that – a second chance to build their banking history.

What is a second-chance bank account?

A second-chance bank account is one that you can open without worrying about a credit check or prior banking mistakes, which can appear on reports from customer reporting agencies like ChexSystems.

Bounced checks and overdrafts, involuntary account closures, and unpaid negative balances can all show up on reports from ChexSystems. Traditional banks might deny you if your report includes marks like these.

If you’re having trouble opening a checking account or getting a secured credit card to rebuild your credit, a second-chance bank account can equip you with the necessary tools to turn your finances around.

According to the FDIC, 4.5% of U.S. households are unbanked – that is, they don’t have a checking or savings account.¹ Unbanked rates are higher among households led by single mothers, Black and Hispanic households, lower-income households, less-educated households, and working-age households with a disability.

Whether it’s because of negative marks on their ChexSystems reports, an inability to afford minimum balance requirements, or a distrust of banks because of past interactions, these households don’t have access to banking services that could improve their financial well-being.

Quality second-chance banking services can be a game-changer. Here are some of the ways a second-chance bank account can help:

Grow your savings

Without access to a bank account, it can be hard to build an emergency savings fund. You’ll also miss out on earning interest on your cash, especially if you have a high-yield savings account. Some savings accounts may also come with automatic savings features to grow your savings faster.

Pay with a debit card

Some merchants no longer accept cash, especially in the post-pandemic era. Without a checking account and debit card you might have to get a prepaid card. These can come with fees that make everyday purchases more expensive.

Get paid

In some states, employers are allowed to require payment by direct deposit, meaning your job prospects could be more limited without a checking account.² Employers may offer other payment methods, but these methods might be less convenient. For example, you may have to wait for a check in the mail and then drive to the issuing bank or a nearby check-cashing store to get your money.

Improve your credit score

If you can’t take out a loan or get approved for a credit card, it can be challenging to improve a bad credit score. But traditional lenders may be unwilling to take a chance on offering you a loan if you have bad credit or no credit at all.

So how can you start building your credit score if banks and credit unions won’t even give you a shot? Second-chance banking could be the answer. Financial institutions offering second-chance banking are more likely to have features like a secured credit card to help you start repairing your credit.

Protect your money

As long as you choose a bank account that’s insured by the FDIC (or a credit union account that’s insured by the NCUA), your account is insured for up to $250,000 (or more). Alternatively, if you keep cash under your mattress or in your purse, all it takes is a fire or lost wallet – and your money’s gone.

Looking for a second-chance bank account but not sure where to start? Here are some of the top features to prioritize:

• Low or no fees: Some financial institutions charge monthly service fees just to have a bank account. This can make banking too expensive, especially for low-income families. Instead, find an account with low fees – or no monthly maintenance fees at all, like the Chime Checking Account.
• No minimum balance requirements: According to the FDIC, one of the core reasons that 4.5% of households are unbanked is an inability to afford the minimum balance requirements.¹ Second-chance bank accounts often don’t have these.
• Automatic savings features: Some financial institutions offer helpful features that make it easier to grow your savings. You might be able to send a portion of your paycheck straight to your savings account, or round up debit card purchases and put the extra change in savings.
• No overdraft fees: Overdraft fees can add up quickly – and households already struggling with finances are more likely to overdraft.³ Find second-chance banking accounts with no-fee overdraft to avoid this charge.
• ATM access: If you’re not used to keeping your money in a checking account, you’ll want to make sure you have easy access to cash when you need it. Find an account with plenty of fee-free ATMs to easily withdraw your money.
• Access to other financial features: If you’re looking for a second-chance checking account, you may also have some work to do on your credit score. Find a second-chance account that lets you open a secured credit card to help repair your credit. For example, Chime members can apply for the Chime Credit Builder Secured Visa® Credit Card to start building credit safely – no credit check required.⁴
• An easy-to-use app: Mobile banking apps may enable you to track low balances, manage your spending more easily, and get reminders for bill due dates.

Ready to open a second-chance bank account? Here’s how to do it:

1. Find the account for you: Research a few second-chance banking options and compare the fees, deposit requirements, interest rates, and features.
2. Apply: Once you find the right fit, apply with the bank or credit union, either online or in person. You’ll need some basic info, like your birthday, home address, and maybe a photo ID.
3. Move money into the account: Once you’ve opened the account, find out your options for funding it with the cash you have on hand. Each financial institution will have its own methods, so just follow their guidance online or call customer service if you need help.

Traditional banks and credit unions may deny you because of old issues reflected on your ChexSystems report, but that doesn’t mean you’re out of options. Research where you can open a second-chance bank account to start turning your finances around.

Trying to improve your credit at the same time? Find out how long it takes to build your credit score from scratch.