Can You Open a Bank Account With Bad Credit?

If you’re wondering whether bad credit can keep you from opening a bank account, you’re not alone. Many people assume a low credit score means they can’t open a new checking or savings account.

The good news is that bad credit usually won’t stop you from opening a checking account or savings account, even if you’re working to improve your credit. Many banks don’t rely only on your credit score. They also review your banking history.

Understanding the difference between your credit history and your banking history can help you find the right account and avoid unnecessary roadblocks.

Can you open a bank account with bad credit?

You may be able to open a bank account even if you have a poor credit score. Many banks and credit unions don’t rely on a traditional credit check when you apply for a checking or savings account. Instead, they review your banking history to see how you’ve managed past accounts.

If you’ve accumulated unpaid overdraft fees, bounced checks or had an account closed due to negative balances, you may have fewer options.

To open a bank account, you’ll usually need:

• A government-issued photo ID
• Your Social Security number or other taxpayer identification
• Proof of address
• An opening deposit, if the account requires one

Every bank has different rules, so check the account requirements before you apply.

Where can you open a bank account with bad credit?

You may be able to open a bank account with bad credit at traditional banks, credit unions and online banks. While each financial institution has its own requirements, many look at your banking history rather than your credit score when you apply.

Traditional banks

Traditional banks usually offer checking and savings accounts, debit cards, online banking and bill pay. Many also offer direct deposit, overdraft protection and FDIC-insured accounts.

While many traditional banks review ChexSystems reports, policies vary from one institution to another.

Credit unions

Credit unions may offer lower fees, competitive annual percentage yields (APY) and personal customer service.

Many credit unions review your banking history instead of your credit history when you apply for a new account.

Online banks

Online banking has made it easier for many people to find accounts with fewer fees and flexible eligibility requirements.

Many online banks offer:

• No minimum balance requirements
• Low or no monthly service fees
• Early direct deposit
• Mobile check deposit
• Budgeting and money management tools

Some online banks advertise accounts with no traditional credit check. This usually means they don’t review your traditional credit score. Instead, they focus on your banking history.

Second-chance checking accounts.

Second-chance checking accounts are designed for people who have had trouble opening a standard checking account because of their banking history. They can provide access to everyday banking services while giving you a chance to rebuild your banking history.

While second-chance checking accounts may charge monthly service fees or offer fewer features than traditional accounts, they can provide an opportunity to rebuild your banking history. After demonstrating responsible account management for a period of time, some banks allow customers to upgrade to a standard checking account.

Checkless or safe debit accounts.

Some banks offer checkless checking accounts, sometimes called safe debit accounts. These accounts generally include a debit card for purchases, direct deposit capabilities, online bill pay and mobile banking.

Because these accounts don’t allow paper checks and may limit overdrafts, they can make it easier to avoid extra fees and help build better banking habits over time.

Online and mobile bank accounts with no credit check.

Many online financial institutions advertise bank accounts with no credit check.

In most cases, this means they don’t review your credit report from Experian®, Equifax® or TransUnion®.

However, they may still review your ChexSystems report or another banking history report before opening your account.

If you’ve had banking problems before, it’s a good idea to review each bank’s requirements before you apply.

Fees to watch for with a bad-credit bank account.

The fees you pay depend on the bank and the type of account you choose. Common bank account fees include monthly service fees, overdraft fees, ATM fees, minimum balance fees and returned item fees. Reviewing a bank’s fee schedule before opening an account can help you avoid unexpected costs.

Some banks may offer accounts with no overdraft fees or no minimum balance requirements. Comparing account features can help you avoid extra costs.

What is ChexSystems—and what disqualifies you?

ChexSystems is a consumer reporting agency that tracks your banking history. Many banks use ChexSystems reports when deciding whether to open a checking or savings account. Unpaid bank fees, negative account balances, repeated overdrafts, bounced checks and suspected fraud may make it harder to open a new account.

Unlike your credit report, ChexSystems reports focus on your banking history rather than your creditworthiness.

You can request a free copy of your ChexSystems report to review the information and check for errors.

Does closing a bank account hurt your credit?

Closing a checking account or savings account doesn’t usually affect your credit score because deposit accounts aren’t typically reported to the major credit bureaus.

However, if you leave unpaid fees or a negative balance that is sent to collections, that collection account could appear on your credit report and could affect your credit history.

Before you close an account:

• Make sure all transactions have cleared.
• Bring your balance to zero.
• Update any automatic bill payments.
• Move your direct deposits to your new account.

What to do if you’re denied a bank account.

If you’re denied a bank account, you may still have options. Ask why your application was denied, review your ChexSystems report for errors and consider accounts designed for people with previous banking issues. Taking these steps may improve your chances of opening an account in the future.

You can:

• Ask why your application was denied.
• Request a copy of your ChexSystems report.
• Dispute any incorrect information.
• Look for a second-chance checking account.
• Consider online banks with more flexible requirements.
• Pay any outstanding bank fees that may be preventing approval.

Taking these steps may improve your chances of qualifying for an account in the future.

What counts as bad credit?

Credit scoring models may vary, but many lenders consider scores below 580 to be poor or “bad” credit scores. A lower credit score may also affect your ability to qualify for some personal loans.

Your credit score is based on several factors, including:

• Payment history
• Credit utilization
• Length of your credit history
• New credit inquiries
• Credit mix

Final Thoughts

Bad credit usually won’t stop you from opening a bank account. Many financial institutions consider your banking history when reviewing your application.

If you’ve had banking problems in the past, options like second-chance checking accounts and online bank accounts may help you build positive banking habits. Before you choose an account, compare fees, features and requirements. That can help you find the option that fits your financial needs.

DISCLAIMER: This content is for informational purposes only and should not be considered financial, investment, tax or legal advice.