Second chance banking is a group of financial rebuilding opportunities offered by certain banks and credit unions. If you've had some monetary missteps in the past and would like to get your finances in order again, a second chance banking product might be just what you need. Keep reading to find out more about second chance banking and how it could help you reach your financial goals.
Second chance banking is a blanket term that can refer to a few different banking products. All second chance banking products are specially designed for consumers who don’t currently qualify for regular checking accounts, credit cards, or loans because they have some blemishes on their credit report or banking history. Second chance banking can also help consumers who have never had a bank account, credit card, or other financial history to get started. Many people feel that they're forced to live without a bank account, or simply rely on a prepaid debit card, if they have a poor or nonexistent financial past. But, second chance banking opportunities expand your choices and give you the building blocks you need to start over.
A prepaid debit card does have some advantages, since it's easy to use and won't allow you to spend more money than you actually have. But, prepaid debit cards don't help you reestablish or build a good relationship with a financial institution. That's where a second chance checking account can come in help. With a second chance checking account, you can write checks just like with a normal account. Of course, you can link a debit card to the account as well. The main difference between second chance checking and traditional checking is that second chance checking doesn't generally allow any overdrafts. You can also expect a monthly maintenance fee to maintain the account, but it's generally quite reasonable. By having a second chance checking account rather than a prepaid debit card, you can establish a positive history with your bank or credit union all while having access to things like a free debit/ATM card, mobile apps for money management and more. Eventually, this can pave the way to opening a traditional checking account.
There are several second chance banking products to choose from. All of the following options can work separately or together to help you build your financial future.
Second chance checking is the cornerstone of a rebuilding strategy. Almost anyone can qualify, even if you've still got some past debts to pay. Establish your second chance checking account as soon as you can, and then start using it regularly to pay your bills and establish a history of responsible money spending.
A secured credit card, which is sometimes also known as a prepaid credit card, is typically a low limit card that is secured by your own funds. So, it works much like a debit card in that a $200 deposit equals a $200 spending limit. But, the big difference with a secured credit card is that the credit card helps you build a credit history. With consistent responsible use of your secured credit card, you can improve your credit history and gradually trade it in for a traditional non-secured credit card.
A credit builder loan isn't a traditional loan. With this type of loan, you borrow a set amount, but you don't actually use the money. That money sits in a separate account, which you don't have access to until you've completed loan repayment. But, with every loan payment you make, the bank or credit union sends a positive report to the credit bureaus. This helps you build a positive credit history, and then when the loan is paid off the funds are released to you.
If your goal is to reestablish - or newly establish - a credit history, it makes sense to take advantage of all the secured credit card or credit builder loan options explained above. Speak to your credit union representative about how second chance banking can give you the new start that you deserve today!