Second-chance checking accounts can help you rebuild your banking history — here’s how they work

Getting rejected for something as essential as a checking account can feel discouraging. According to the Consumer Financial Protection Bureau, some of the common reasons banks and credit unions deny checking account applications include a history of negative marks on your account caused by instances such as excess overdraft or suspicion of fraud.  

But one rejection doesn't mean you're permanently exiled from the banking system. Second-chance checking accounts offer you an opportunity to access a checking account and start building a better financial record for your future. 

Below, CNBC Select breaks down how second-chance checking accounts work and how to decide if one is right for you. 

A second-chance checking account is an account where the bank or credit union doesn't examine your ChexSystems or Early Warning Services report when deciding whether to approve your application. Similar to how the major credit bureaus collect and report data provided to creditors and lenders to assist them in determining an individual's borrowing credibility, ChexSystems and Early Warning Services also generate reports on an individual's banking activity. 

A track record of banking issues may result in customers being blacklisted by these agencies which banks often review before approving new account applications. That means having a flawed banking record can cause your application to be rejected.   

Second-chance banks, on the other hand, don't look at this record and allow you a "second chance" at using a checking account. Some of our favorite second-chance checking accounts include Chime® Checking*, which offers no overdraft fees, monthly maintenance fees or foreign transaction fees. Note you may still have to pay any cash withdrawal and third-party fees, along with out-of-network ATM withdrawal fees except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM. 

Wells Fargo Clear Access Banking also doesn't charge overdraft fees but it does require a $25 minimum opening deposit and a monthly maintenance fee of $10. However, the maintenance fee is waived if you're part of Wells Fargo's Worldwide Military Banking program, if the primary account holder is between the ages of 13 and 24 or if the account is linked to a Wells Fargo Campus ATM Card or Campus Debit Card.  

It's important to keep in mind that second-chance checking accounts typically don't offer overdraft protection since the purpose of these accounts is to help you avoid overdrawing your account and build a positive banking history. While these accounts don't come with overdraft fees, they simply decline any transactions made when your account lacks sufficient funds. 

Although second-chance banking accounts offer a pathway for those looking to rebuild their banking histories, they do come with some drawbacks.  

Pros

• Consumers won't have to resort to check-cashing services which can come with costly fees that quickly chip away at your funds. 
• Customers may eventually transition to a more standard checking account depending on the bank's policies. You can contact your bank to inquire about the possibility of upgrading.  
• Any ongoing banking activity on your second-chance account will get reported to ChexSystems, which will help with building a positive history when managed responsibly.  

Cons 

• Some second-chance checking accounts come with mandatory monthly fees that can't be waived, unlike the fees of some standard checking accounts.  
• Some accounts may require a minimum deposit or even a money management course to open an account.  
• Accounts usually come with fewer features than standard checking accounts such as overdraft protection.  

If you've been denied a standard checking account because of your banking history, second-chance checking could be your best option. However, before you decide to apply for an account consider asking the bank or credit union why you were denied in the first place. There may be an error in your banking history that's causing the problem. You can also access a copy of your ChexSystems, Early Warning Services or credit report for additional insights.  

If you find you can address any errors by paying off any unsettled fees and removing the negative entry, you could try to apply for a standard checking account again, which sometimes works according to Experian. Nonetheless, if a second-chance checking account is your best bet before you can qualify for a standard checking account, be sure to research and weigh your options. 

A second-chance checking account can be a great option if you've been denied a standard checking account due to previous banking issues. Although this account type may come with some limitations, it's a solid choice to access an essential banking account while building up a track record of responsible use.  

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every banking story is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of banking products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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*Chime® is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC.