Second Chance Checking Accounts: How Do They Work?

A second chance checking account gets you back into a bank when a negative ChexSystems record has gotten you turned down everywhere else. It works like a normal checking account — debit card, direct deposit, online banking — with guardrails the bank adds to limit its own risk, usually no overdraft coverage and a monthly fee.

A negative banking record doesn't disappear on its own for five years, which is a long time to go without a bank. A second chance account is how you keep banking in the meantime, and how you build the clean history that gets you back to a standard account.

Before you sign up for one, check whether you need it. Some banks and credit unions don't screen through ChexSystems at all, and a Bank On certified account costs less than most second chance accounts while offering the same protection against overdrafts.

Key Takeaways

• ChexSystems keeps most negative records for five years from the date they were reported. You can get back into banking well before that, but the record itself won't clear early on its own.

• You're entitled to a free ChexSystems report every 12 months, and another within 60 days of being denied. Reading it is how you find out which bank reported what.

• Second chance accounts don't offer overdraft coverage, and that's the point. Unpaid overdrafts are what put most people in ChexSystems to begin with.

• A monthly fee is standard, and it's what you're paying for access. Compare it against a Bank On certified account, where the fee is capped at $5 and overdraft fees aren't possible.

• Most banks want 6 to 12 months of clean history before converting you. Ask what the review period is before you open the account, since some banks don't convert at all.

• Good standing on the account won't build your credit score. Checking activity isn't reported to the credit bureaus — it rebuilds your banking record, which is a separate thing.

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What Is a Second Chance Checking Account?

A second chance checking account is a checking account for people who can't pass a bank's standard screening, usually because of a negative ChexSystems record. Banks that offer one either skip the ChexSystems check or approve applicants they'd otherwise decline.

ChexSystems is a consumer reporting agency for banking, the way Equifax and TransUnion are for credit. Banks report closed accounts, unpaid balances and suspected fraud to it, and roughly four out of five banks check it before opening an account.

The account is meant to be temporary. You use it to bank normally while your record ages or gets corrected, then move to a standard account.

Why Would You Be Denied a Regular Checking Account?

Banks deny checking applications based on what's in your ChexSystems file, and the entries that trigger a denial are almost always tied to money the bank didn't get back.

• Unpaid overdrafts

• Bounced checks

• Unpaid fees

• An account closed "for cause"

• Suspected fraud

A denial isn't permanent, and it isn't a credit decision — you can have a strong credit score and still be turned down over an unpaid overdraft from years ago.

How Do Second Chance Checking Accounts Work?

Second chance accounts give you the everyday functions of a normal account with the riskiest features removed. You get a debit card, direct deposit and online banking, and you generally don't get overdraft coverage.

• Paper checks are limited or unavailable at many banks, and where they're offered, check-writing may be capped in amount and frequency.

• Transactions that would overdraw the account are declined rather than covered, so the balance can't go negative.

• A monthly maintenance fee is standard, and some banks waive it with direct deposit.

• Deposits are FDIC or NCUA insured, exactly as they are in a standard account.

What Are Your Rights Around ChexSystems?

Your rights under the Fair Credit Reporting Act let you see your ChexSystems file, challenge what's in it, and force a response on a deadline.

• You can request a free report once every 12 months, and a second free one within 60 days of being denied an account because of it.

• You can dispute anything inaccurate, and ChexSystems has 30 days to investigate and respond. If the entry can't be verified, it has to come off.

• Most negative entries expire five years from the date they were reported.

• Paying off what you owe doesn't automatically clear the entry. The bank that reported it can ask ChexSystems to update or remove it early, but nothing requires them to — ask for it in writing as part of the payoff.

Pull your report before you apply anywhere, so you know which bank reported the debt and how much is actually owed.

What Should You Watch Out For?

Some second chance accounts charge more than the problem they're solving, and a few aren't bank accounts at all.

• High or stacked monthly fees that outweigh the benefit

• Accounts that allow overdrafts or charge overdraft fees, which is what put most people here in the first place

• Prepaid cards marketed as "accounts" that aren't FDIC-insured bank accounts

• Add-on fees for paper statements, transfers, inactivity or customer service

• No stated path to a full-privilege account

A second chance account should cost you a predictable monthly fee and nothing else. Anything that can surprise you is the wrong account.

Are There Cheaper Options to Try First?

You may not need a second chance account at all, and the alternatives usually cost less. Check these before you apply for one with a monthly fee.

• Bank On certified accounts, which cap the monthly fee at $5, require $25 or less to open, and can't charge overdraft, NSF or inactivity fees

• Credit unions, many of which don't screen through ChexSystems or weigh it less heavily

• App-based accounts that don't run a ChexSystems check

Bank On certified accounts are offered by hundreds of banks and credit unions, including some of the largest, so this isn't a niche workaround — it's a standard account with the fees that cause trouble removed.

How Much Do Second Chance Accounts Cost?

Second chance accounts charge a monthly maintenance fee that a standard account wouldn't, and that fee is the main cost of using one.

• Monthly maintenance fees, which vary widely between banks

• Minimum balance requirements at some banks

• Fee waivers tied to direct deposit, offered by some banks but not guaranteed

Compare the annual cost of the fee against what a Bank On certified account would cost you over the same period.

How Do You Rebuild Your Banking History?

You rebuild a banking record by running a second chance account cleanly for as long as the bank requires, and by clearing the debts that got you flagged.

• Keep the account positive and avoid returned payments, which is the entire basis for the bank's review.

• Pay off unpaid balances from closed accounts, and ask the reporting bank in writing to update your ChexSystems entry when you do.

• Dispute anything inaccurate on your report rather than waiting five years for it to expire.

• Keep a small cash buffer so a mistimed debit doesn't turn into a returned payment.

Set your bills to draw a few days after payday rather than before it, since most returned payments come from timing rather than shortage.

How Do You Graduate to a Standard Account?

You move to a standard account by completing the bank's review period, usually 6 to 12 months of good standing, and then asking to convert. Conversion isn't automatic at most banks — you have to request it.

Once you convert, you generally get fee-free checking, higher withdrawal limits, unlimited check-writing and access to the bank's savings accounts. Ask two questions before you open a second chance account, because not every bank offers this at all.

• How long is the review period, and what counts as good standing?

• Does the account convert at the same bank, or would you need to reapply?

How Do You Choose the Right Second Chance Account?

Choose a second chance account on four things — whether it's a real insured bank account, what it costs each month, whether it can overdraw, and whether it leads somewhere.

• Confirmed FDIC or NCUA insurance, not a prepaid card marketed as an account

• No overdraft coverage and no overdraft or NSF fees

• A low monthly fee, ideally waivable with direct deposit

• A stated path to a full-service account, with a defined review period

• Fee-free ATM access in a network near you

• A mobile app that shows pending transactions, so you can see a debit before it lands

Frequently Asked Questions

Are second chance checking accounts FDIC insured?

Second chance accounts at a bank are FDIC insured up to $250,000 per depositor, and accounts at a credit union carry the same coverage through the NCUA. Prepaid cards marketed as accounts may not be, so confirm the insurance before you deposit anything.

Can a second chance account still overdraft?

Legitimate second chance accounts decline transactions that would overdraw the balance rather than covering them, because unpaid overdrafts are the most common reason people end up in ChexSystems. Some accounts marketed as second chance do allow overdrafts and charge for them, which is a reason to look elsewhere.

How long are you stuck in ChexSystems?

Most negative entries expire five years from the date they were reported. You don't have to wait that long to bank, though, and disputing inaccurate entries or paying off what you owe can move things faster.

Can you open a second chance account with bad credit?

Bad credit alone rarely blocks a checking application, since banks screen mainly through ChexSystems rather than the credit bureaus. Some banks do check credit when deciding whether to offer overdraft coverage or a line of credit alongside the account.

Do second chance accounts help rebuild credit?

Checking account activity isn't reported to the credit bureaus, so good standing won't raise your credit score. What it rebuilds is your banking record, which is what banks look at when you apply for a standard account.

What if I'm denied a second chance account too?

Ask which reporting agency was used and request that report, since some banks use Early Warning Services rather than ChexSystems. From there, a credit union or a Bank On certified account is usually the next step, and paying off the underlying debt removes the reason for the denial.

Key Terms to Know

• Second chance checking account. A checking account for people who can't pass standard screening, with limited features and usually a monthly fee.

• ChexSystems. The consumer reporting agency banks use to check your account history, covering closed accounts, unpaid balances and suspected fraud.

• Early Warning Services. A second banking reporting agency some banks use instead of or alongside ChexSystems.

• Closed for cause. An account the bank closed itself, usually over an unpaid negative balance or suspected fraud, and one of the entries most likely to trigger a denial.

• Fair Credit Reporting Act (FCRA). The federal law giving you the right to see, dispute and correct what reporting agencies hold about you.

• Bank On certified account. A checking account meeting national standards for low cost and no overdraft fees, offered by hundreds of banks and credit unions.

• Overdraft coverage. A bank's option to pay a transaction that exceeds your balance and charge you for it, which second chance accounts leave out.

• Conversion. The move from a second chance account to a standard account after a set period of good standing.

Sources

• ChexSystems: Answers to Frequently Asked Questions

• Cities for Financial Empowerment Fund: Bank On National Account Standards

• Federal Deposit Insurance Corporation: Deposit Insurance At A Glance

• Consumer Financial Protection Bureau: Submit a complaint