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Second Chance Banks: How to open business checking account online no chexsystems

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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.

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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:

  • Overdrafts
  • 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.

(Curious about your business credit report? Access it and get your free business credit scores here.)

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.

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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.

Chime Checking 

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.

This article was originally written on September 2, 2020.

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Bad Credit

How to get a business credit card with bad personal credit

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Dear Business Banter,

I want to start a business, but I have bad credit. What are my options? – James

Dear James,

Although an impressive credit history and high credit scores aren’t required to start a business, they sure help! After all, you may soon want to borrow funds from a financial institution so you can do everything from pay for the costs of a launch to managing ongoing operations.

To appeal to a lender, your past credit history will be relevant. Thankfully, you can overcome the problems associated with bad credit to qualify for a business credit card—and a loan, since that might be necessary too.

Have a business question for Erica? Drop her a line at the Ask Bankrate Experts page.

Build up your score

Since your business has yet to begin, you don’t have a business credit profile that can help you qualify for credit products. Therefore, lenders will assess your personal creditworthiness to determine qualification and set terms.

To know what is dragging your credit scores down, pull your credit reports up. You can get a report from each of the three credit reporting agencies—Experian, TransUnion and Equifax—once a year for free from annualcreditreport.com.

The information listed in the sections for trade lines, public record, and credit inquiries of your credit report is all inputted into scoring models, so read your reports carefully. If you spot any inaccuracies, file a dispute with one of the credit reporting agencies. The one you use will notify the other two, and your files will be updated.

To improve your scores (even when the negative data is still being listed):

  • Pay all credit accounts on time. Although late payments hurt credit scores (especially when there are many, or accounts are seriously delinquent), establishing a perfect payment history from this point forward will help mend the damage.
  • Reduce credit card debt. If you have credit cards and they’re maxed out, reduce the balance to well below the credit limit.
  • Open up a credit card. Consider opening a personal credit card. Many credit cards are created specifically for people with bad credit. Once you have it, choose a small bill to charge each month, then pay it off in full and on time.
  • Add utility and cell phone accounts to your report. The more on-time payments you have on your credit report, the better. Experian has a free Boost program where you can add non-credit accounts to your file. Those payments should help give your FICO 8 credit score at least a few extra points.

With this strategy, your credit score will increase over time.

See related: Do I need a business credit score to start a business?

Get a business credit card

Although you can use a personal credit card for your business, it’s better to get one specifically for your company. They offer benefits that are designed to help business owners do everything from handle their enterprise’s expenses to helping with accounting.

Just be aware that these cards remain your personal responsibility. Even if it’s in your business’s name, you will be on the hook for all payments and any outstanding debt.

So, how can you get a business credit card with bad personal credit? When your scores are at least in the “good” range, start looking into the business credit card options that are available. As you’ll see, there are many from which to choose, so give this task plenty of time.

Be aware that some business cards are charge cards while others are credit cards. With a charge card, there is no preset limit, but you’ll need to pony up the entire balance within about 30 days. With a credit card, there is a maximum amount you can charge, but you can pay at least the minimum requested payment and then revolve the rest. Ultimately, you may want one of each.

When your scores are at least in the “good” range, start looking into the business credit card options that are available.

Almost all business cards have rewards programs attached to them, so read over the program’s details and focus on those that you’ll use. For example, if you think traveling will be in your future, concentrate on a card that gives you the best perks for flights, airport amenities, hotels and car rentals.

Many business credit cards offer excellent sign-up bonuses, too, where you would receive a large amount of points, cash or miles after spending a certain amount with the card within a few months of activation.

Some also offer 0 percent APRs for a fixed number of months, which will give you a nice amount of time to pay for your venture’s needs before financing fees are assessed. As long as you pay the debt in full before the real rate begins, you get a free loan! As you use the card, you’ll be racking up rewards.

These programs differ, so make sure it’s a good match. One card may offer an exceptional reward value for restaurant meals, while another gives the most for things like office products.

Finally, prepare for annual fees. Not all cards charge them, but if you get more out of the account by way of perks and rewards, you’ll come out ahead. Choose wisely.

Look into loans

Credit and charge cards tend to be great for short-term financing, while business loans are preferable for big-ticket expenses that you want to pay off over several years.

To get a business loan with the best terms, it’s best to wait until your credit is in decent shape. However, if you must borrow a significant amount of money right away and then pay in equal installment payments, there are startup business loans for bad credit.

Loans with no credit checks still pass through an approval process, but the lender analyzes your assets and income for approval instead of your credit history. If it appears that you can make the payments that are associated with the loan, it should be approved. Other lenders do check credit reports and scores, but the standards for qualification are low.

In either case, loans that are developed for people with bad credit tend to be smaller and come with higher interest rates than those for people who have good credit.

Whichever loan you get, simply pay it off according to the agreement. Assuming the lender furnishes information to the credit reporting agencies (most do, but if you get a “no credit check loan,” ask the lender to be sure), it will help your credit scores rise.

Take these simple steps and you’ll not only repair your bad credit but will have the good credit products for your business!

Bottom line

To qualify for a business credit card (and a business loan), take action to improve your personal credit history.

Shape up your FICO score, identify the right business card for your needs and consider a business loan.

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Bad Credit

Home Equity Loan With Bad Credit: Can It Be Done?

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Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

Home equity loans let you turn your equity into cash, which you can use to pay for home improvements, unexpected medical expenses, or any other bills you might be facing.

Generally, lenders require at least a 620 credit score to qualify for a home equity loan. If your score isn’t quite there yet, though, you still have options.

Here’s how you may be able to get a home equity loan with bad credit:

  1. Check your credit and try to improve it
  2. Find out your debt-to-income ratio
  3. Find out how much equity you have
  4. Think about bringing on a cosigner
  5. Shop around for the best rates
  6. Consider alternatives to bad credit home equity loans

1. Check your credit and try to improve it

To start, head to AnnualCreditReport.com and pull your credit. You get one free report from all three credit bureaus per year.

Once you have your credit report, check it for errors and evidence of identity theft, such as accounts you don’t recognize and credit cards that aren’t yours. Reporting these to the credit bureau can help improve your score. So can taking these steps:

  • Pay all your bills on time: Payment history — or your track record of payments — accounts for 35% of your score, so make it a point to pay all of your bills on time, every time.
  • Pay down your debts: Lenders want to see a credit utilization rate of 30% or less — meaning your balances account for 30% or less than your total available credit.
  • Keep credit cards open: How long your accounts have been open impacts 15% of your credit score, so avoid closing accounts — even once you’ve paid them off.
  • Avoid applying for new cards: This will result in hard credit inquiries, which can hurt your score.

Learn More: How Your Credit Score Impacts Mortgage Rates

2. Find out your debt-to-income ratio

Lenders will also consider your debt-to-income ratio (DTI) when you apply for a home equity loan. This indicates how much of your monthly income goes toward paying off debt.

How to calculate DTI: Add up your monthly bills and loan/credit card payments, and divide the total by your monthly income. Multiply that amount by 100.

For example, if you have $2,000 in debt payments and make $6,000 per month, your DTI would be 33% ($2,000 / $6,000 x 100).

Most lenders want a DTI of 43% or lower. A low DTI can help improve your chances of getting a loan, especially if you have a lower credit score, since it indicates less risk for the borrower.

3. Find out how much equity you have

How much equity you have in your home, as well as your loan-to-value ratio, will determine whether you qualify for a home equity loan — and how much you can borrow. To find out yours, you’ll need to get an appraisal, which is a professional evaluation of your home’s value. The national average cost of a home appraisal is $400, according to home remodeling site Fixr.

Once the appraisal is finished, you can calculate your loan-to-value ratio by dividing your outstanding mortgage loan balance by your home’s value.

For example: If you have $100,000 remaining on your home, and the appraisal determines it’s worth $200,000, then you have an LTV of 50% ($100,000 / $200,000). This also means you have 50% equity in the home.

Most lenders will only allow you to have a combined LTV of 85% — meaning your existing loan, plus your new home equity loan can’t equal more than 85% of your home’s value.

In this example, you’d be able to borrow $170,000 (85% of $200,000) across both your initial mortgage loan and your new home equity loan. Since your existing loan still has $100,000 on it, that’d mean you could take out a home equity loan of up to $70,000.

4. Think about bringing on a cosigner

Bringing in a family member or friend with excellent credit to cosign your bad credit loan can help your case, too. If you do go this route, make sure they understand what it means for their finances. Though you may not intend for them to make payments, they’re just as responsible for the loan as you.

Tip: If you fail to repay the loan as agreed, it could hurt the other individual’s credit score or result in collections against both of you. Make sure you’re upfront and transparent about what cosigning your loan may mean for them.

5. Shop around for the best rates

A lower credit score will typically mean a higher interest rate, so it’s incredibly important you shop around and compare your options before moving forward. Get rate quotes from at least three to five lenders, and make sure to compare each loan estimate line by line, as fees and closing costs can vary, too.

Credible makes comparing rates easy. While Credible doesn’t offer rates for home equity loans, you can get quotes for a cash-out refinance — another strategy for tapping your home equity. Get prequalified in just three minutes.

Get the cash you need and the rate you deserve

  • Compare lenders
  • Get cash out to pay off high-interest debt
  • Prequalify in just 3 minutes

Find My Loan
No annoying calls or emails from lenders!

6. Consider alternatives to bad credit home equity loans

A bad credit score can make it hard to get a home equity loan — especially one with a low interest rate. If you’re finding it difficult to qualify for an affordable one, you might consider one of these alternatives:

Cash-out refinance

Cash-out refinances replace your existing mortgage loan with a new, higher balance one. You then get the difference between the two balances in cash.

Find Out: Credit Score Needed to Refinance Your Home

Personal loans

Personal loans offer fast funding, and you don’t need collateral either. Rates can be a bit higher than on home equity loans and refinances, though, so it’s even more important to shop around. A tool like Credible can help here.

Check Out: Home Equity Loan or Personal Loan: How to Choose the Best Option

Compare multiple lenders

If you have bad credit, there are still ways to tap your home equity or borrow cash if you need it. Head to Credible to see what personal loan options and mortgage refinance rates you might qualify for. With Credible, you can easily compare prequalified rates from all of our partner lenders without leaving our platform.

About the author

Aly J. Yale

Aly J. Yale

Aly J. Yale is a mortgage and real estate authority and a contributor to Credible. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.

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Bad Credit

A Look Back At Housing 2020: Rental Housing Gets Riskier

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According to the American Housing Survey cited in a recent article, there are about 48 million rental housing units in the United States ranging from single-family homes to large multifamily apartment complexes. Of those 48 million units about 23 million are owned by individuals, according to a recent Rental Housing Finance Survey; that’s more than half of the occupied units in the country. Yet private rental housing providers have been under relentless attack in recent years increasing risks and costs. This has worsened in 2020 as I have pointed out. More risk means fewer housing units and higher prices, not a good outlook for the future.

Any business based on renting assets is based on risk. Think about the last time you went bowling. When you rent the shoes, the person behind the counter often will hold a driver’s license? Why? It’s a way of offsetting the risk that you’ll go home with the shoes either on purpose or accidentally. Nobody wants to deal with a lost driver’s license. Offsetting this risk has absolutely nothing to do with you or your trustworthiness; it is uniformly applied and routine.

Housing providers have to similarly offset the risk of allowing a stranger occupy their private property. There are several ways of doing this, including using credit checks. But lately, politicians are beginning to eliminate the credit check from the tools that housing providers can use to offset risk. Minneapolis for example has eliminated credit checks arguing that they are a “barrier” to housing.

Is race a factor in bad credit and thus a barrier to people of color to get housing? The fact is, yes, African American people have more credit issues. But would eliminating credit checks help them? The answer is, “No.”

An article in the Washington Post, “Credit scores are supposed to be race-neutral. That’s impossible,” is emblematic of how this issue plays among the public and policy makers. The author says two contradictory things. First,

“This would lead one to think that credit-score calculations can’t be biased. But factors that are included or excluded in the algorithms used to create a credit score can have the same effect as lending decisions made by prejudiced White loan officers.”

Then she writes,

“One quick way to impact your credit history is a court-ordered judgment. And Black borrowers are more likely to fare badly when taken to court by their creditors. Debt-collection lawsuits that end in default judgments also disproportionately go against Blacks, according to a 2020 Pew Charitable Trusts report.”

Logically, the right way to state this is that credit measures are biased against people who have default judgments against them, and African Americans have higher rates of defaults. Then the next question would be, “Why?” The most obvious answer is the right one, poverty is disproportionately concentrated among people of color.

But eliminating credit checks for housing won’t help that problem. If a housing provider is unable to evaluate risk based on past financial performance her only option will be to raise rents and deposit amounts in case there is a problem; that extra cash would provide a buffer if a resident stops paying rent. This won’t help anyone with less money. What’s the response to that? Ban rent increases by imposing rent control! That’s a bad idea too and won’t help either.

The answer is to figure out how people who have less money and therefore have more issues making ends meet can solve that problem and improve their credit scores. The author of the Washington Post article makes a sensible suggestion: include steady rent payments in credit scores. Some housing providers do, and it’s a great idea. But it is a positive one that actually helps the family; banning quantitative measures of past financial performance doesn’t.

The danger that unfolded in 2020 is that justifiable outrage about racism could lead to interventions that don’t address poverty and it’s negative consequences like default judgments but elimination of accepted measures of those consequences. Eliminating the evidence of poverty – struggling to pay bills – doesn’t help pay the bills! At best, these kinds of measures sweep the problem under the rug ensuring higher rents and making housing a risky business only big corporations will be able to do.

The answer is to address the broader underlying issues of poverty and increasing housing production. When there is more supply of housing providers compete with providers for residents and will be forced to bargain with potential residents, even those with dings or dents or completely destroyed credit. Housing abundance solves a housing problem while eliminating measure of risk only makes that risk higher and actually creates a housing problem.

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