How to Open a Bank Account With Bad Credit

A bad credit score can affect your ability to get a credit card, qualify for a loan, or even be approved for a rental home. But what about opening a bank account?

When you apply for a checking account, the bank won’t check your credit score. But they will check your ChexSystems consumer score.

ChexSystems is a consumer reporting agency that analyzes consumers’ banking histories. It provides banks and credit unions with a report detailing negative information, like negative balances, unpaid fees, overdrafts, bounced checks, and suspected identity theft or fraudulent activity. ChexSystems does not report on active bank accounts, credit cards, or loans.

Financial institutions use ChexSystems to determine whether or not to approve an application for a bank account. They may deny your bank account application if they see negative information on your report.

You may be more likely to have a negative ChexSystems report if you have a low credit score. In that case, finding a bank that will approve your account application can be challenging. If you’re struggling to find a bank account because of your past bad credit habits, consider the following.

Improve your credit score

First and foremost, you’ll need to work on improving your credit score. A strong credit score suggests that you are financially responsible, often equating to a higher ChexSystems score.

There are several actions you can take to rebuild your credit score:

• Pay your bills on time. Payment history makes up 35% of your FICO^® Score.¹, ² Set up automatic payments to ensure you don’t miss deadlines.
• Avoid using too much of your available credit. Amounts owed make up 30% of your FICO Score.¹ Try to keep your credit utilization (the amount of your total available credit you use) under 30%.³ For example, if you have a credit limit across multiple cards of $5,000, you’ll want to keep your balance below $1,500.
• Consider a secured credit card. This card type requires a cash deposit that acts as collateral, making it ideal for those with poor credit or a limited credit history. As you use the card responsibly, the issuer will report your usage to the credit bureaus, and your score will increase.
• Apply for a credit builder loan or secured loan. These loans are ideal for those with poor credit scores. You should boost your credit score by making monthly on-time payments for the loan length.
• Become an authorized user. Ask a family member or close friend with good credit whether they will add you as an authorized user to their card. Your score should increase as the issuer reports activity to the credit bureaus.
• Get a co-signer when applying for a loan. A co-signer promises to be legally liable for a loan issued to someone with bad credit. Pay the loan back on time, and your credit score should increase.

Boosting your credit score won’t guarantee approval when you apply for a checking or savings account. Still, consumers with good credit are less likely to have negative transactions on their ChexSystems report.

Dispute errors on your reports

Credit reports and ChexSystems reports can both contain errors. Check your reports thoroughly to identify potential errors, like an unpaid fee that you know you paid.

You can submit a dispute directly with your bank or through ChexSystems, which will work with the bank on your behalf. A dispute will trigger a reinvestigation, and you may be required to provide documentation like account statements, paid-in-full letters, police reports, or identity theft affidavits. ChexSystems disputes are usually completed within 30 days, and ChexSystems will notify you of the results.⁴

Apply for a second-chance checking account

Some banks offer second-chance bank accounts for people whose ChexSystems scores and banking history may not qualify them for a traditional bank account. Second-chance accounts can help you rebuild your banking history.

A second-chance checking account usually has fewer services and perks than a regular account. They often have monthly fees and may require the completion of a money management class to open an account. Some also require you to enroll in direct deposit, and most won’t allow you to overdraw your account.

However, second-chance accounts are often the best choice if you can’t get approved for a traditional account. After proving you can be responsible with your money, you may be able to upgrade to a regular checking account several months after opening your second-chance bank account.

Consider a prepaid card

You can also consider a prepaid card if you’re having trouble finding banks for bad credit. Prepaid cards are loaded with funds that you can access via the card.

A prepaid card is not a bank account; your spending is limited to the amount of money loaded onto the card. However, it can be a good short-term option while you work on building your credit or dispute information on your credit report or ChexSystems report.

A bad credit score doesn’t have to define your financial life. By improving your credit score and banking history and learning how to open a bank account with bad credit, you can take positive steps toward a brighter future.

Ready to take the next step? Learn how to open a checking account today.