How to Get a Checking Account with Bad Credit
Damaged or bad credit can make it difficult to obtain financing, make major purchases and get some jobs. It can even prevent some individuals from obtaining a checking account.
Because having a checking account is such an essential financial need in today’s world, the inability to get one can be debilitating. People can still get by without standard credit cards or loans, but the lack of access to a checking account can mean closing the door on almost all credit options, as well as facing the higher expense of check-cashing services.
The good news is that there are still options available for individuals with bad credit who need a checking account. But first it’s important to understand how the process works for consumers with damaged credit.
Obtaining a Checking Account With Damaged Credit
Many banks use a reporting bureau to determine whether or not to approve a customer’s application for a checking account. However, it’s usually not one of the standard consumer credit reporting agencies — TransUnion, Experian and Equifax. Instead they use services such as ChexSystems, which tracks how consumers handle deposit accounts at participating institutions.
When someone applies for a checking account, the bank will run their information through a service like ChexSystems to see if that person has had a bank account involuntarily closed on them. A poor record can result in denial.
When that happens, the following methods can help individuals obtain a checking account sooner rather than later:
Pay Off Balances on Old Checking Accounts
One of the biggest reasons for checking account rejection is that a previous checking account was terminated with a big balance due to the bank. ChexSystems information will ultimately be purged from the database, but that can take up to three years. However, paying off any outstanding balance can reduce that wait time to only one year (as long as it isn’t fraud-related).
Open a Savings Account First
Another option is to open a savings account at a local bank and continue to make regular deposits in the account before applying for a checking account. After several months of responsible usage, the bank may approve the addition of a checking account, based on a history of regular contributions to the savings account. A poor credit score typically suggests unreliability. By demonstrating your consistency through the savings account, the bank will have a better understanding of how you handle money, despite your poor credit score.
Check in with a Credit Union
Some credit unions can be more lenient with regard to checking accounts. Many even have classes that their customers can take that allow them to open a checking account after completion of a financial education course. Check with credit unions online or in the area to find one that is willing to give individuals with damaged credit a second chance.
Consult a Non-ChexSystem Bank
Not all banks use services such as ChexSystems. In fact, some banks actively offer checking accounts for individuals with damaged credit. Consumers can find these more lenient banks by conducting an online search for “checking accounts for bad credit.” But be prepared to pay higher fees and face more restrictions when using these banks.
Family and Friends
Finally, one of the fastest and more guaranteed ways to obtain a checking account is to get added on to someone else’s account. A relative or friend can open a new checking account based on their credit rating, and they can then add another person to the checking account without having to check that second person’s credit history.
The Fraud Factor
It’s important to understand that there’s a difference between having negative credit because of poor financial management versus having a history of committing fraud. If a consumer’s poor rating is because he or she committed bank fraud using the checking account, it will be much more difficult (and take longer) to obtain a checking account on their own.
Banks do want more customer business, especially checking and savings account deposits — it is a mutually beneficial relationship. But they also have to be on guard for potential losses and against those who abuse the system. Nevertheless, almost every consumer, regardless of credit, has options for obtaining a functional checking account. It’s often just a matter of taking the initiative in finding these opportunities and then managing them responsibly.