Can You Open a Business Checking Account with Bad Credit?
Opening a business checking account is a smart first step in starting a business. With one primary reason being the separation of personal and business funds, a bad credit score shouldn't keep you from being able to open a business account and receive similar benefits as other business owners. So how much does bad credit affect your ability to open a business account? You can open a business checking account even with bad credit, but you may have to spend some time and effort before you get approved.
Many banks will want to see proof of income for the business. You'll also have to provide proof that you are an "active" business owner with your business checking account. If the bank sees that the money is being placed into another personal account, they might close your account. If a bank won't let you open a business checking account due to bad credit, understanding the reason why begins with understanding ChexSystems.
ChexSystems is a credit reporting agency that reports data on third-party accounts to consumer reporting agencies such as Experian and TransUnion. ChexSystems is a very large company and hires investigators, who scour bank records for evidence of fraud and scams. These investigators then report that evidence to their client banks, which often hold the bad debt, called "collections" in banking terms, in an "investment account," which is the type of account most banks use to keep track of all your balances. ChexSystems is the federal reporting agency that informs banks of your personal history with checking and savings accounts. Your ChexSystems score is similar to a credit score, except ChexSystems only reports negative behaviors such as insufficient funds, outstanding debts, bounced checks, and the like. Your ChexSystems score is connected to your social security number. You can check your own ChexSystems score to see what you have done wrong in the past. This way, you can avoid it happening in the future.
If your bank isn't letting you open a business checking account due to bad credit, it's likely they're denying you based on your ChexSystems report. The easiest way around this is to find and open your account with a bank that doesn't use ChexSystems.
The trick is to know where and how to shop for your bank account. You will want to bypass banks that do not allow new accounts and only want existing accounts. You will also want to look for account types that include "second chance" labels. Accounts offered to those with bad credit are sometimes called second chance accounts. For example, BBVA Compass Bank ClearConnect for Business and Chime Second Chance Banking can give you access to the bank account you need to separate your business and personal finances. Note that sometimes banks will require you to come in person to open the account, instead of allowing it to be done online. All in all, though, your best bet for bypassing the ChexSystems approval is to visit local banks. Local banks are much more willing to work with customers to provide what they need. They will often give more weight to a person's situation and special circumstance than allow automated systems to deny customers.
You can absolutely open a business account with bad credit, it just may take some creativity. Look for banks who won't use your ChexSystems report when approving your business account like those with "second chance" account offerings. Be willing to visit a bank in person to open your account instead of trying to do it online. Lastly, don't overlook local banks as a wonderful option.
To find and open a business bank account online, start at our Free Checking Account portal.