How To Open a Business Checking Account With Bad Credit

When starting your company, opening a business checking account should be a top priority as it’s critical to managing your business finances and establishing your brand. However, this seemingly straightforward task may be more challenging than expected.

For instance, any misuse or infractions in your personal banking activity can raise red flags and negatively impact your ability to open a business checking account. 

In this article, we’ll take a closer look at the impact of personal credit on opening a business account, how your banking activity is monitored, and what options you have if you encounter any issues.

The Impact of Personal Credit

Your personal credit report is a tool that banks use to determine your creditworthiness. Everything from credit card debt to mortgage payments are reported to credit bureaus like Equifax and Experian, which maintain your credit history and report it using a three-digit number. Lenders and banking partners use that number to assess how likely you are to pay back loans on time. 

Your personal credit score and banking history can impact your ability to open a business checking account. If you have a poor credit score due to account management issues, banks may be less inclined to open a business account. 

In addition to your personal credit report, which describes how you’ve handled your debt, there’s another equally important report focused on your banking activity that’s issued by Chexsystems.

What Is Chexsystems?

Chexsystems is a consumer reporting agency that tracks and records your banking activity and reports any misuse or infractions that occurred in your personal bank accounts. Services provided by ChexSystems, which is affiliated with Fidelity National Information Services, are governed by the Fair Credit Reporting Act (FCRA).

Banks use Chexsystems reports to evaluate past customer banking behavior, look for patterns of poor account management, determine the level of risk, and choose whether to approve or deny an account.  

What To Do If You Have Bad Marks on Chexsystems

You may not be aware of any issues on your banking report until you attempt to open a new business bank account. Under the FCRA, you can request a copy of your report annually by visiting the Chexsystems website. Doing so might alert you to any reports of overdrafts, property liens, or money owed. 

If the negative information on your Chexsystems report is accurate, then you should take steps to resolve any issues quickly since those infractions will live on your report for five years. The report will show any money owed to the reporting institution, which you can pay off directly or with an agency if the balances have been sent to collections. In some cases, you might be able to settle the debts for less than originally owed. Once the outstanding balances have been paid, you might have a better chance of getting approved for a business bank account. 

You also have the right to dispute inaccurate information with both Chexsystems and the bank that supplied the information. Under the FCRA, both parties are required to work together free of charge to investigate disputes, offer a detailed report of the findings, and update your report accordingly.

How To Open Business Checking Accounts With Bad Credit

If you’re having difficulty opening a business bank account due to your personal banking and credit history, there are some steps you can take to achieve your goal. 

Form a Relationship With a Personal Banker

Ideally, you’d be able to open a bank account where you could form a relationship with a personal banker. These bankers can become business allies once they gain an understanding of your business and cash flow needs. With that in mind, you may also want to look to community banks or credit unions as an alternative to traditional banks. They often have different lending and account opportunities for local clients, so you may be able to receive the best of both worlds, even if you’ve had issues in your personal banking past. 

Form a Limited Liability Company

Businesses operating as sole proprietorships may find it beneficial to file as a limited liability company (LLC) in order to separate the owner from the business. Here are some benefits to forming an LLC: 

• You will receive an employer identification number (EIN). 
• You can separate your personal and business credit. For example, your personal credit will not be affected if your business is unable to repay a loan.
• Protecting your company’s credit will ensure that the business is not penalized for any one partner’s personal financial choices.  (This is especially important if your business includes multiple partners.) 

Try Second-Chance Banking

If you’re unable to open an account with traditional banks, financial institutions such as Wells Fargo, Chime, Radius Bank, and Peoples Bank provide banking services to customers with questionable banking history through “second-chance” checking accounts. With second-chance banking, your Chexsystems report may not necessarily prevent you from opening a business account. 

While these types of accounts may have drawbacks such as higher monthly fees and limited ATM access, they give customers with bad credit or negative Chexsystems reports an opportunity to enjoy many traditional banking amenities and build a positive banking history for their business. 

Frequently Asked Questions (FAQs)