Can I Open a Bank Account With Bad Credit?

A bank account can provide you with services that a spot under your mattress can’t. It offers security, plus the convenience of features such as online bill pay. And because banks tend to favor existing customers, you may also be able to take advantage of financial products such as credit cards, debit cards and personal loans.

But what if you have bad credit?

Here’s some things to consider when opening a bank account with bad credit.

How Do I Get a Bank Account With Bad Credit?

A low credit score won’t stop you from opening a bank account. A majority of banks don’t run credit checks when you open a checking or savings account. One thing that may stand in your way of opening an account is if you have a bad banking history. This could include unpaid negative balances, multiple overdrafts or involuntary account closures.

If you have bad credit, research different banking options to find the best for you. You can then either visit the financial institution or sign up online. To open an account you may need the following:

  • A government I.D.
  • Something to prove you live at your listed address. (Mail with your name on it, a lease agreement, etc.)
  • Your Social Security number and date of birth.
  • An initial deposit. (This amount will vary depending on the bank.)

Where Can I Open a Bank Account With Bad Credit?

There are a number of account options available for those with a low credit score. Before opening a bank account, compare different types of financial institutions and their terms.

Traditional banks

If you prefer physical locations and in-person representatives, you may want to open a bank account with a traditional bank. Because these institutions have been around for decades, they may feel like a safer option as well.

However, traditional banks can’t always offer the same perks as online banks. They have more overhead costs, and they may charge you more in fees.

If you’re considering a traditional bank, be sure to find one that offers services and features that meet your personal finance needs. For instance, some banks are more technologically advanced than others. If you prefer a digital banking experience, look for a bank with a mobile app where you can manage your account easily.

Online banks

Online banks may offer fewer fees due to their low overhead costs. Like traditional banks, many are also “member FDIC,” so your money will be insured up to a limit.

Online banks strive to be as user-friendly as possible. Their mobile banking capabilities are often more advanced and simpler to use thanks to their tech-forward approach. There are usually no physical locations to visit, which can make depositing cash difficult. However, they typically have good customer service and you can talk to a representative via phone, live chat or email if you need assistance.

Credit unions

To open an account with a credit union, you must be a member, which comes with requirements. However, if you do meet the requirements, you may be satisfied with the lower fees and banking services that credit unions may offer.

Like traditional and online banking, an account with a credit union is protected. The National Credit Union Administration insures accounts with credit unions up to a limit.

Things To Consider Before Opening a Bank Account With Bad Credit

Consider the different fees your financial institution charges, and determine which ones you can avoid. The following is not a complete list, so make sure you research the fees your bank charges.

Transaction fees. If you make too many withdrawals from your savings account, you may run into a transaction fee up to $25. These fees can often be avoided when you use a checking account for regular withdrawals.

Overdraft fees. These fees occur when you spend more money than you have in your bank account. A simple way to avoid overdrafting is to create a good budget and deposit checks with direct deposit. Traditional bank accounts often offer overdraft protection, but this option may be limited for account holders with a bad banking history.

Monthly fees. A bank may charge you monthly fees for simply having an account with them. These fees can range from $4 to $25, but may differ per bank. You may be able to avoid monthly maintenance fees or service fees by opening a savings account and checking account with the same bank. Additionally, some banks will waive monthly fees if you set up direct deposit.

ATM fees. ATM withdrawals with out-of-network machines can cost you about $4.73 on average, which adds up if you withdraw often. Most fee-free ATMs are machines in your bank’s network, so be sure to use your bank’s online or mobile ATM finder.

Minimums. You may be required to have a minimum opening deposit when you open a new account. The minimum deposit amount is typically $25 to $100. Similarly, your bank account may have a minimum balance requirement.

Why Don’t Banks Offer Checking Accounts to People With Bad Credit?

You can usually open a checking account or a savings account if you have bad credit. In fact, most banks don’t even check your credit report.

They do however check your previous banking activity through a reporting agency called ChexSystems. A ChexSystems report looks at your banking history to see if you have negative balances, unpaid bank fees, bounced checks, involuntary account closures or overdrafts. Your report is wiped clean every five years, so if you demonstrate five years of responsible banking habits, your ChexSystems score may improve dramatically.

Even if your bank history is not ideal, you still have options. Many banks offer second-chance bank accounts, also called second-chance checking accounts. These accounts are designed for account holders who need to practice better banking habits.

Drawbacks of a second-chance checking account include more fees and restrictions with fewer perks, among other things. However, some let you graduate to a regular checking account if good banking behavior is demonstrated over a period of time.

Do Bad Credit Bank Accounts Offer Features and Rewards?

Generally, features and rewards for bad credit bank accounts are few and far between. If there are any features offered, you’re more likely to receive them with certain online banking institutions. But if you practice good habits to rebuild your credit and banking history, you can work your way to a traditional checking account with features and rewards, such as cash-back deals.

What Is Bad Credit?

A bad credit score is a credit score in the “poor credit” or “fair credit” category. There are three major credit bureaus, and a commonly used independent analytics company called FICO. Each uses different considerations when calculating your credit score.

According to Experian, Equifax and FICO, a bad credit score is in the 300 to 629 range. TransUnion considers a score in the 300 to 660 range to be low.

Your credit score is a calculation of your creditworthiness based on your credit history. A high credit score is a good credit score, making you more appealing to lenders.

DISCLAIMER: This content is for informational purposes only. NetCredit and its affiliates do not provide financial, legal, investment or tax advice.

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