How to Open a Bank Account with Bad Credit


Imagine you’ve just landed a new job. On your first day, the accounting department asks you to provide your bank details for direct deposit of your salary. For most, it’s a straightforward request, but if you don’t have a bank account, it’s a staunch reminder of the hurdles you face with bad credit.

woman on mobile phone

Without a bank account, simple tasks like depositing a paycheck, paying bills online, or even shopping can become cumbersome and more expensive, often requiring reliance on costly check-cashing services and money orders.

The Challenges of Bad Credit in Banking

For those with a bad credit history, opening a bank account can feel like a distant dream. Banks often use credit checks, not only for loans and credit cards, but also for opening a new checking or savings account.

This practice can leave individuals with bad credit in a catch-22 situation: needing a bank account for financial stability but being denied due to their credit history. Moreover, systems like ChexSystems, which most banks use to screen potential customers, can flag your banking history for issues like overdrafts or unpaid fees, making it even harder to get approved for an account.

However, the situation isn’t without hope. Despite these challenges, there are banks and credit unions that understand and cater to those with credit difficulties. In this article, we’ll explore the avenues available, offering a guide through the seemingly complex process of opening a bank account even with bad credit.

Why Banks Check Your Banking History

When you apply for a bank account, some banks will check your credit reports with one or more of the three major credit bureaus. However, most banks look into your banking history rather than your credit history.

This is where ChexSystems comes into play. ChexSystems is a consumer reporting agency that keeps track of your banking behavior, including any negative marks such as unpaid overdrafts or bounced checks. If you have a troubled history reported in ChexSystems, it can lead to a bank denying your account application. This system is a common method banks use to protect themselves from potential financial risks.

Options for Banking with Bad Credit

Second Chance Checking Accounts

Second chance checking accounts cater to individuals who struggle to open standard bank accounts, often due to their ChexSystems record. These accounts typically have certain limitations like lower withdrawal limits or higher fees.

Banks that offer these accounts include Wells Fargo with their Opportunity Checking, Bank of America’s SafeBalance Banking, and PNC Bank’s Foundation Checking. By using these accounts responsibly, you can work towards improving your banking record.

Banks That Don’t Use ChexSystems

Around 80 to 90% of banks and credit unions use ChexSystems to help them decide whether to approve your application for a bank account. However, there are some banks that don’t use ChexSystems. These banks might employ different methods for risk assessment, or may not perform a background check at all.

Banks like U.S. Bank, SoFi, Chime, Current, and Go2bank fall into this category. They focus on your current financial status rather than past banking problems, offering a chance for a fresh start in banking.

Prepaid Debit Cards: A Practical Alternative

Prepaid debit cards are an alternative to traditional bank accounts. You preload these cards with funds and then use them for everyday transactions.

Unlike standard bank accounts, prepaid debit cards are not linked to checking accounts and do not offer overdraft facilities. They are a straightforward option for daily financial management, particularly useful for those working on improving their financial habits.

Step-by-Step Guide to Opening a Bank Account with Bad Credit

Initiate Your Search

Begin by looking for banks or credit unions that offer second chance banking, or those that don’t rely on ChexSystems. These institutions are more likely to be open to working with individuals who have bad credit.

Evaluate Key Account Features

Carefully examine each account’s fees, limitations, and minimum balance requirements. Understanding these details can help you find an account that suits your financial situation and needs.

Check Online Banking and Customer Service

Assess the quality of online banking services and customer support provided by the banks you’re considering. Reliable online access and supportive customer service are essential for managing your account effectively.

Read Customer Reviews

Take the time to read reviews from other customers, particularly those in similar financial situations. Their experiences can offer valuable insights into how the bank treats customers with bad credit.

Prepare Your Documents

Before applying, gather all the necessary documents. Commonly required items include a government-issued ID, your Social Security number, and a recent proof-of-address, such as a utility bill in your name and current address.

Understand the Application Procedure

Get to know the application process of the bank you’ve chosen. While it can vary, most banks provide clear guidelines on their website or through customer service. Make sure you understand each step to avoid any surprises.

How to Clear Your ChexSystems Record

Request Your ChexSystems Report

  1. Obtain your report: Under federal law, you are entitled to a free copy of your ChexSystems report once every 12 months. Request it through the ChexSystems website, by phone, or by mail. Ensure you have your identification details handy, as you’ll need to provide these to verify your identity.
  2. Review your report thoroughly: Once you receive your report, review it carefully. Look for any items that are unfamiliar or incorrect. Common errors include misreported balances, accounts mistakenly attributed to you, or inaccuracies in personal information.

Dispute Inaccuracies

  1. File a dispute: If you find errors, file a dispute with ChexSystems. This can be done online, by mail, or by fax. Clearly explain why the item is incorrect and provide any evidence that supports your claim, such as bank statements or letters from creditors.
  2. Wait for investigation results: ChexSystems is required by law to investigate your dispute within 30 days (21 days if you live in Maine). They will check with the reporting financial institution and then confirm, update, or delete the disputed information based on the findings.

Settle Outstanding Issues

  1. Contact the reporting bank or creditor: If your report contains legitimate negative items, contact the bank or creditor to resolve them. This might involve paying off an outstanding balance or settling other banking issues.
  2. Request a letter of resolution: After settling any issues, ask the bank or creditor for a letter of resolution or deletion. This document confirms that the issue has been resolved and can be used to request that ChexSystems remove the entry from your report.
  3. Follow up with ChexSystems: Once you have the letter of resolution, follow up with ChexSystems to ensure that the entry is removed. Provide them with a copy of the letter as proof.

Maintain a Clean Record

  • Practice good banking habits: To prevent future negative entries, ensure you maintain a positive balance in your accounts, avoid overdrawing, and promptly address any bank fees or charges.
  • Regularly check your banking history: Regular monitoring of your banking history can help you catch and address issues early. Consider checking your ChexSystems report annually, even if you don’t suspect any problems.

Bottom Line

Opening a bank account with bad credit can indeed be challenging, but it’s far from impossible. With the right approach and information, you can find financial institutions willing to work with your situation. Whether it’s through second chance banking, banks that don’t use ChexSystems, or prepaid debit cards, there are options available to help you get back on track.

Remember, the key is to stay informed, be proactive in managing your finances, and continually work towards improving your credit and banking history. Use your new account responsibly, keep an eye on your financial habits, and take advantage of tools and resources that can aid in your financial journey.

The steps to clearing your ChexSystems record, choosing the right bank, and understanding the application process are all part of a larger journey towards financial stability and independence. With patience and persistence, you can overcome the hurdles of bad credit and open new doors to financial opportunities.

As you move forward, keep in mind that every step you take towards responsible banking and credit management is a step towards a brighter financial future. Stay positive, stay informed, and embrace the journey to better financial health.

Dawn Allcot
Meet the author

Dawn Allot is a personal finance writer and content marketing expert specializing in finance, travel, real estate, and technology. In addition to her work at Crediful, Dawn regularly writes for Bankrate, GoBankingRates, and The Balance.