It can be a real challenge to open a bank account for those who hold bad credit on their profile. A credit score determines how responsible you are with managing your finances, and a bad credit score will always take the banks offshore from your interest.
The only resort is to start building your credit score, and it will eventually take some time. But what if you need a bank account while you are still in the process of building your credit scores? Well, there are a few things that can be done, and this article discusses a few of them.
Also Read: A 7-Step Process on How to Get a Loan with a Bad Credit Score
Can’t Open a Bank Account with a Bad Credit Score? Do This Instead
Opening a bank account allows you to avail of most bank products such as loans, mortgages, credit cards, EMI schemes, and more. But these seem beneficial to only those who have a higher credit score, and they avail these products at lower interest rates and in alignment with their goals. However, low credit scores can charge you more interest rates, penalties, and limited access or features to these products.
This is because low credit scores mean higher risk, and banks don’t want to lose out on money but rather make more.
Thankfully, there are a few workarounds to help you open a bank account with a bad or low credit score. Let’s look at each of these workarounds.
1. Open a Basic Bank Account
If you have a low credit score, it’s pretty challenging to get a fully functional normal bank account. However, you can still get a checking account, and it pretty much works in most scenarios.
These bank accounts are also a little different from normal bank accounts as these come with limited features and financial tools. Additionally, you might see higher interest rates on your credits and bank charges for the transactions you make, as your account is termed as a risk account.
Most banks don’t go through each detail of your credit report, so getting a basic bank account is the most feasible option. It is important to note that while banks don’t go through each detail, they still check for fraudulent history and verify your identity to approve your new bank account.
Also Read: What is an Average Credit Score for Auto Loans
2. Credit Check Policies
Your state might have several different banks that offer multiple financial tools and services. While all these banks offer you the same – money services, there are a few banks that might have lenient credit checking policies.
It is in the best interest to go through most banks, irrespective of how big or small, and check for their credit checking policies. It is a good chance of finding at least one bank that offers leniency as they are in tough competition.
Note: It is best to verbally check the credit checking policies in each bank and not run a credit score request. Running a credit score request would leave an inquiry on your credit report, which directly lowers your credit score and leaves a damaging impact.
3. Online Banks
The concept of online banks is not new, and it’s been there ever since the internet boom. These banks are a digital version of the physical banks, and there are a few banks that exist online only.
Now, a few online banks may allow individuals to apply for a bank account with not-so-restrictive measures. The reasons for such leniency are the lesser overhead cost of a digital bank, and the banks also might be interested in allowing bad credit users to open a basic account.
However, it is important to do thorough research and find a reputable and trusted online bank that meets your requirements.
Also Read: What is Hard Inquiry on your Credit Report & How it Affects Your Score
4. Prepaid Debit Cards
Financial institutions such as VISA offer prepaid debit cards, which are a great aid and solve the need for bank accounts to an extent. A prepaid debit card allows you to load money on your card and spend it just like you would with a savings card. Once you fully utilize the amount, you can reload the card and start using it again.
These cards are a great way to control spending and budgeting over credit cards as the balance amount here is limited, and you cannot buy more than what you can.
One of the biggest advantages of using prepaid debit cards is they are not linked to your traditional bank accounts. So, there is no credit checking or any inquiry on your credit report when you get a prepaid card.
These prepaid cards can come with a fee for reloading or transactions, and these vary between cards such as VISA, Mastercard, and more.
5. Conveying your Improvement on your Credit Situations
This is the second last thing you want to do when applying to open a bank account, and most bank accounts wouldn’t consider explanations and stick to their technicals. However, it is worth giving it a shot.
Explain your credit situation and how you are trying to build your credit score. If you have taken a credit builder loan, mention it and the timely payments you have recently made. Banks might consider your work in improving your credit situation and might allow you a bank account that is fully functional or restrictive based on your credit score improvements.
Rebuilding your credit score might not seem easy, but it is doable with proper strategies and the aid of tools. Always keep an eye on your credit scores and try resolving negative entries with dispute letters to credit bureaus. You can generate a dispute letter using DisputeBee, which is a letter-generator tool for credit disputes. I have the detailed DisputeBee Reviews already available on the website for you to refer to and understand how this tool works.
Write Dispute Letters that Work
Use DisputeBee, a professional credit repair software that automates the dispute writing process to create near-perfect and credible dispute letters.
6. Credit Unions
Credit unions are community-driven financial institutions that offer credit services even when you are facing financial challenges. These are made up of a group of people, and you can join them by being a member. At a particular frequency, you need to deposit a certain amount in these credit unions, and you can avail of a loan in times of need.
Most credit unions don’t look into your credit history before adding you as a member or when granting a credit. However, it is important to note these loans might have higher interest rates, and you need to be part of the credit union community for a significant amount of time to avail of the most beneficial features.
Also Read: Should I Pay to Check My Credit Scores? A Handy Guide
Wrapping up: Open a Bank Account with a Bad Credit
This pretty much wraps up a few ways you can avail credit or open a bank account with bad credit. It is important to note that banks might have varying policies that might not comply with the methods mentioned in the above article. On the other hand, thorough research in multiple banks without raising a credit score request or checking can help you get through this situation.
It is always best to start working towards rebuilding your credit score as soon as possible; it’s a time-consuming process. Use my Credit Repair Guide to help you with a bad credit situation – The Space Shuttle Strategy.
Frequently Asked Questions [FAQs]
Yes, it’s possible. While a traditional, fully functional bank account might be challenging, you can opt for a basic checking account. These accounts have limited features, and you may face higher interest rates, but they are designed to accommodate individuals with lower credit scores.
Yes, various banks, regardless of size, may have different credit checking policies. It’s advisable to verbally inquire about these policies without running a credit score request. Running a credit score request can impact your score negatively.
Yes, online banks might offer more lenient measures due to lower overhead costs. Research reputable online banks, as some may allow individuals with bad credit to open basic accounts.
Absolutely. Prepaid debit cards, like those offered by VISA, are a viable option. They don’t require a credit check and can be used like regular debit cards. However, be aware of reloading and transaction fees associated with these cards.
It’s worth a try. While most banks stick to their technical criteria, some may consider your efforts to improve your credit situation. Explain any steps you’ve taken, such as credit builder loans or timely payments, to showcase your commitment to rebuilding your credit.
Yes, credit unions are community-driven institutions that often consider members facing financial challenges. Joining a credit union may provide access to credit services even with a bad credit history. Keep in mind that these loans may have higher interest rates.
Rebuilding a credit score is a time-consuming process. The key is to be consistent in implementing strategies. Utilize tools like the Credit Repair Guide mentioned in the article, such as the Space Shuttle Strategy, to aid in improving your credit situation.
