Guide to Second-Chance Bank Accounts

Q: Can you open a bank account if you owe money to another bank?

It’s up to each bank to decide whether the information found in your ChexSystems report is concerning enough to deny you a new account.

Q: How can you qualify for a second-chance bank account?

Qualification requirements vary depending on the financial institution. In some cases all you need to open an account is a photo ID, Social Security number, phone number, and address.

Susan GuilloryUpdated January 31, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

You might have a few things in your financial history that you’re not proud of. Maybe you racked up several overdraft charges, wrote a few bad checks, or had an account involuntarily closed. As a result, you might be finding it difficult to open a bank account.Will you be forced to stash all your cash under your mattress? Not necessarily. You may want to consider second-chance bank accounts as an option to rebuild your banking history.

What Is a Second-Chance Bank Account?

A second-chance bank account is a checking account designed for people who have difficulty opening accounts due to past banking issues — such as an account closed due to unpaid overdraft fees. When you apply for a bank account, the financial institution will check your banking history – much like a credit card company or lender will check your credit history. Banks and credit unions will use a credit reporting agency called ChexSystems to check for any negative bank-related information, like overdrafts, bounced checks, and unpaid fees. If you have a negative banking history, you likely won't be able to open an account, which may impact your ability to access additional bank services and products. Your negative banking history may stay on your report for up to five years, which can make it challenging to find a banking solution.With a second-chance bank account, the bank or credit union either doesn't check your ChexSystems report or is willing to look past your previous missteps. Second- chance accounts are designed to do just that – give someone a second chance or, in other words, a fresh start.

How Do Second-Chance Bank Accounts Work?

A second chance checking account will typically have limited banking features to reduce the risk that the account holder will incur any bank fees. For example, you might not be able to overdraw your account, or you might not have access to checks or a debit card to prevent returned check or overdraft fees. Some second-chance accounts waive or reduce monthly fees to make it easier to manage the account. Many, however, will actually charge higher fees than regular checking accounts to compensate for the fact that these account holders present a higher risk compared with customers who have a clean banking history.Second-chance accounts are generally meant to be temporary. As you use the account, it can help you build a positive history with ChexSystems. After a year or two with no negative actions, you may be able to convert the account to a regular checking account without extra restrictions or costs.Recommended: What Is Checkless Banking?

Pros and Cons of Second-Chance Bank Accounts

Is a second-chance bank account right for you? There are both benefits and drawbacks to consider.

Pros	Cons
Give you access to a checking account	No overdraft protection
Helps you rebuild your banking history	May charge monthly fees
Better than non-banking alternatives like check-cashing services	Doesn’t help build credit

Pros

A second-chance account gives you access to a checking account, which is a basic tool for money management. You can use it to deposit paychecks, safely store your cash, and make bill payments. Though they may charge fees, these accounts are generally less expensive than alternatives like a prepaid debit card or a check-cashing service.A second-hand checking account can also help you rebuild your banking history and move past financial mistakes so that one day you’ll be seen as an exemplary customer by your bank. This can help you gain access to other banking products, like high-yield savings accounts credit cards, and loans.

Cons

Second hand bank accounts typically come with limitations. You may not get paper checks, a debit card, or overdraft protection, for example. These accounts may also come with extra requirements, such as setting up direct deposit or completing a money management class. And many charge high monthly fees.Another downside is that, while these accounts can help improve banking history, they don't rebuild credit. For that, you’ll want to consider a secured credit card.Recommended: How Can You Get a Direct-Deposit Personal Loan?

Second-Chance Bank Accounts vs Typical Bank Accounts

Second-chance accounts function in a similar way to typical bank accounts. However, there are some differences. Here’s a look at how these two accounts compare.

Second-Chance Bank Account	Typical Bank Account
Often charge monthly fees	Can often get fees waived
No overdraft protection	Typically offer overdraft protection
Available to those who have had a checking account closed in the past	Not available to those who have had a checking account closed

Typical Second-Chance Bank Account Requirements

Requirements for opening a second-hand bank account vary depending on the institution, but you may be asked to provide a valid, government-issued photo ID, along with basic information, such as your birthdate, Social Security number, and phone number. You may also need to provide an initial deposit, which can range from $5 to $25. However, some banks don’t require any deposit to open the account.When evaluating second-chance bank account applicants, many institutions do not look at your ChexSystems report. Some banks and credit unions, however, will read your report and, if they deem you're too much of a risk based on information in your report, they might deny your application.

Selecting a Second-Chance Checking Account

Second hand bank accounts are offered by some (but not all) major banks. You can also find them at regional banks, local credit unions, and some online banks. All second-hand checking accounts are not created equal, however. When looking at your options, here are some things to keep in mind.

Fees

Some second-chance checking accounts charge high monthly fees, while others waive them entirely. Ideally, you’ll want to find an account that has low or no monthly fees.

Restrictions

In some cases, second-chance accounts don’t issue debit cards or checks to account holders. Or, they might limit daily or monthly transaction amounts. You’ll want to read all the terms and conditions and choose an account that has the fewest limitations.

ATM Access

If the account is offered by a smaller bank, credit union, or online bank, you’ll want to make sure they offer conveniently located in-network ATMs. If there aren’t any near your home or workplace, you could end up getting hit with high ATM fees.

Been Denied a Bank Account? Know Your Rights

If you apply for a bank account and get turned down, the bank or credit union is required to tell you why. Once you have this information, you may want to get a copy of your ChexSystems report. By law, you are entitled to a free copy of your report once every 12 months, as well as any time you’ve been denied an account.You can request a copy of your report through the ChexSystems website or by calling (800) 428-9623. Once they get your request, they will send you a copy of your report through the mail within five business days.When you receive your report, it’s a good idea to read it carefully and make sure all of the information it contains is accurate. If you see any errors or signs of fraud, you can address them with ChexSystems.

Second-Chance Bank Account Alternatives

If you are struggling to open a second-chance bank account, a prepaid card can be a good alternative if you don’t want to pay with cash. Prepaid cards must be front-loaded (meaning you add money to them) before they can be used for purchases. An advantage of prepaid cards is that they can’t be overdrawn, so you won’t incur overdraft fees. A disadvantage is that your activity won't be reported to ChexSystems, so it won't necessarily give you a better chance of getting approved for a traditional checking account the next time you apply.Check-cashing services provide another way to get access to your money without a bank account, but be wary – fees can run high. You may be better off cashing a check at the issuing bank or at a retailer (some charge lower fees to cash checks compared to stand-alone check-cashing services).

The Takeaway

A checkered banking history can make it difficult to open a new account. Fortunately, you may be eligible for a second-hand bank account as an alternative. Though some features may be limited, these accounts can be a great way to access essential financial services while building up a positive banking history. Once you’re on a good path, you’ll have access to additional bank services and products, such as money market accounts and high-yield savings accounts.When you're ready to explore other banking options, Lantern by SoFi can help. With our online banking marketplace, it’s fast and easy to compare high-yield savings accounts based on annual percentage yield (APY), fees, and balance minimums. Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

Which banks offer second-chance bank accounts?

Can you open a bank account if you owe money to another bank?

How can you qualify for a second-chance bank account?

Photo credit: iStock/spawns

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About the Author

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.

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