Nobody’s perfect, but if you’ve had negative banking activity in the past, realize that those errors might have a long-term impact on you and your business.
Just like credit bureaus keep track of your credit history, adjusting your credit score based on whether you pay your credit card bills on time, your credit to debt ratio, and other activities, financial institutions keep track of how well you manage your money in your checking and savings accounts.
There’s a banking reporting agency called ChexSystems that keeps track of your banking activity that financial institutions use to determine whether someone applying for a new account is a risk or not. Just like having bad credit may hinder you from qualifying for low-interest financing (leaving you with higher-cost options like merchant cash advance loans), so too can having a bad ChexSystems report make it challenging to open a business (or personal) checking account.
How to Open a Business Checking Account Online with No ChexSystems
While it may be more difficult to open a business checking account with a negative ChexSystems report, there are financial institutions, both online and locally, who will let you open an account without running the report. Be aware that these options may come with higher monthly service fees or other limitations that you wouldn’t otherwise have.
What is ChexSystems?
ChexSystems is a consumer reporting agency that provides information on consumers’ use of deposit accounts. Financial institutions can access details about the following:
- Fraudulent check writing
- Unpaid bank fees
- ATM or debit card abuse
- Suspicious transactions
- Other violations of banking policies and regulations
The ChexSystems score is similar to a credit score in that it indicates the level of risk a consumer provides to banks. The scores range from 100 to 899, with the higher indicating less risk.
How Does ChexSystems Impact Small Business Banking?
Although ChexSystems reports on consumer banking transactions, they still impact your business. Just like bank loans may require a personal guarantee, or use your personal credit scores as part of your application, your personal banking history may be pulled if you’re applying for a business checking account.
Banks consider how you manage your personal money as an indicator of how you might manage your business account. So they often pull your personal ChexSystems report during the application process.
Steps to Opening a Business Checking Account Online With No ChexSystems
All that being said, there are still ways to open a business checking account online, either by cleaning up your ChexSystems report or by working with a bank that doesn’t pull your report.
1. Access Your ChexSystems Report
Let’s look at banks that don’t use ChexSystems as a last resort, because you’re better off trying to improve your report and score. Start by requesting your report from ChexSystems. It’s free to do so once a year.
If you’ve already been denied an application to open a checking account, your report may provide insight into why that happened. You’ll see all the activities banks have reported, like you having a negative account balance or bouncing a check. If anything, it can be eye-opening to see your mistakes laid out.
2. Dispute Any Discrepancies
If you see anything on your report that you believe to be inaccurate, first research your own bank records to confirm that it is an error, then dispute it with ChexSystems.
In addition to inaccurate activity, make sure to check that your social security number and contact information is correct on your report, and if it’s not, dispute that as well.
Investigations on disputes take up to 30 days, so allow plenty of time for the process.
3. If You Have Debts, Pay Them Off
In the event that you have unpaid bank fees or other debts that may be causing red flags in your ChexSystems report, pay them off immediately so that your report is more appealing and your ChexSystems score is higher, qualifying you for more account options.
4. Request Financial Institutions to Update Their Entries
Once you’ve cleared up any discrepancies and paid any banking fees, you can speed up the process by reaching out to the financial institutions that reported on you to update their reports.
5. Give It Time to Clear Your Report
Even if your bank updates its report to ChexSystems, it may take a few weeks for everything to catch up. ChexSystems says it will update resolved disputes within 30 days, but give it a little more time before you try to open a checking account.
Apply for an Online Business Checking Account With No ChexSystems
Plan B, if you don’t want to deal with the steps above, is to apply for a business checking account that doesn’t use ChexSystems.
Most of your options here will be online banks, though there are a few local banks that also offer options to those with bad credit or low ChexSystems scores. Be aware that, while these bank accounts will offer the features you’re looking for, like a debit card or direct deposit, they may also have a minimum balance requirement or higher monthly maintenance fees. Still, if this is your only option, you can use this account to make deposits and withdrawals without incident, rebuild your ChexSystems score, and then later qualify for a less restrictive account elsewhere.
Banks That Don’t Use ChexSystems
When you’re ready to open a checking account, start with the list of institutions in the section below, also called second chance banks. These banks have less strict criteria to open an account in terms of your ChexSystems or credit scores, but do have some drawbacks.
In addition to higher service fees, you may also not have overdraft protection or non-sufficient funds fees, which means if you try to use your debit card for more than the balance in your account, the transaction won’t go through. Accounts that offer overdraft protection would let the transaction process and then charge you a fee. You may also not have access to paper checks (some of these accounts are called checkless checking accounts).
You may need a minimum balance to open your account, as well as need to maintain a specified daily balance to keep your account in good standing. Wait until you have more than enough for that opening deposit to apply for your account so you’ll be off to a great start.
It may be challenging to find a free checking account or interest-bearing checking with a second chance bank or credit union, but you’ll still be able to use online bill pay, get a free debit card, and have access to surcharge-free ATMs.
Second Chance Business Checking Banks
Start your research with the following banks, which offer checking accounts without ChexSystems. There are far fewer second chance banks offering business checking accounts than personal ones, so one of your options is to open a personal checking account with one of the following, build your banking history, then apply for a business checking account down the road.
While Chime doesn’t offer business checking accounts, it is a popular online banking option for personal accounts. Accounts come with a debit card and early direct deposit. There are no maintenance fees with your Chime account.
Peoples Cash Solutions Second Chance Checking
The Second Chance Checking Account from Peoples Cash Solutions has all of the features of a regular checking account, including checks, debit card, and direct deposit. Fees are $4.95 a month.
BBVA Business Connect Checking
This option is a business checking account, but to qualify for the account with no monthly minimum balance and no ChexSystems, you’ll need to be a sole proprietor. There is no monthly service charge, nor daily average minimum to maintain, and you need just $100 to open an account.
Radius Bank Essential Checking
Another personal checking account option to consider is the Essential Checking Account from Radius Bank, an online financial institution. There are a few limitations to be aware of: you’ll have a daily debit card limit of $500 and a mobile check deposit limit of $1,000 per day. The service fee is $9 a month. After 12 months, if you’re in good standing, you may be eligible to upgrade to a Rewards checking account.
Other Alternatives to Banking Without ChexSystems
Opening a business checking account isn’t your only option if you’re trying to avoid ChexSystems but still manage your business’ funds.
Secured Credit Cards
Credit cards can either be secured or unsecured. Secured credit cards require you to put down a security deposit, which then becomes your credit limit. This is usually offered as an option to people with bad credit looking to increase their credit scores. But you can also use it for your business expenses if you don’t qualify for a traditional bank account.
Money Market Accounts
A money market account is like a cross between a checking and savings account: you can earn more interest than you could with either, and you can access your funds relatively easily. Some money market companies do use ChexSystems, so find out if they do before applying.
Prepaid Debit Cards
Another option to consider is a prepaid debit card. Similar to a secured credit card, you can only spend what you load on the prepaid card, and any transactions above that balance will be declined. They don’t do a credit or ChexSystems check for applications.
Nav’s Verdict: Business Checking Accounts with No ChexSystems
If, despite the extra fees and limits on overdraft protection or using checks, you decide to open a personal or business checking account with a second chance bank, use it wisely. Now is your opportunity to rebuild your banking history and eliminate negative ticks on your ChexSystems report (they keep your records for five years).
If you have good banking behavior, you may qualify for better account options down the road, like interest-bearing checking or an account with lower or no fees. Remember: you’ll get the best business financing options for SBA loans and business credit cards, as well as the best bank account options, when you manage your finances responsibly.