How to get a bank account with poor credit rating
Nowadays it is almost impossible to survive without a bank account. Often, for example, employers will not pay earnings by any means other than straight into a bank account, and paying bills in cash is becoming increasingly difficult. However, banks prefer customers who have a good credit rating, and there are said to be over a million people in the UK who are unable to find a bank that will accept them. Poor credit rating bank accounts do exist, though, even if they are not very well advertised. However, it is necessary to know how to find them, and what to ask for.
Bad credit bank accounts
There are specific, purpose-built bank accounts for bad credit. The Financial Conduct Authority (formerly the Financial Services Authority) has tried to ensure that no-one is denied access to banking services, and has encouraged banks to offer accounts for which everyone is eligible. Poor credit bank accounts are called ‘basic bank accounts’, and are designed for people who do not meet the criteria the banks usually set for their customers. There is another category, called ‘guaranteed’ or ‘managed’ bank accounts, for those who might find even a basic bank account hard to get.
What is a basic bank account?
A basic bank account is a simple account which does not allow the holder to overdraw; that is, account holders are not allowed to draw out more than the amount of money which is in the account. Generally, a basic account does not provide a cheque book or credit card. In other ways, it is very much like other bank accounts, but without the features (such as joining bonuses and cashback) that some accounts offer. Basic accounts are often free of charge, although charges will be made if there is not enough in the account to pay a direct debit or standing order. Account holders can get wages, pensions, or benefits paid into a basic account, and use it to pay bills. A cash card makes it possible to withdraw cash from an ATM (cash machine) or a bank branch, or (usually) a Post Office. Basic accounts can generally be operated at branches, by post or telephone, or online.
Why do bank advertisements never mention poor credit score bank accounts?
Because they do not earn overdraft and other fees, basic bank accounts do not make money for the banks, which see them essentially as a public service. For this reason, the banks tend not to waste money on advertising them. Nearly all of the big banks do offer these accounts, however.
Are all basic bank accounts the same?
No, they are not; there is some degree of variation in the type of services offered. Some provide a small ‘buffer zone’, so that it is still possible to get £10 out of a cash machine if the account balance is less than this. Standing orders are not allowed from all basic accounts, and the charges made for unpaid direct debits (when there is not enough money in the account) vary quite considerably. A debit card is a possibility for some basic accounts; they all allow cash withdrawal cards, but some limit their use to cash machines belonging to the bank itself. The minimum age for account holders is 16 for some accounts, 18 for others.
What documents are needed in order to open a basic bank account?
All bank accounts will require proof of identity and address. This is not just the banks’ policy, but is also a legal requirement. The Financial Conduct Authority has acknowledged the difficulties this may cause; people who have a poor credit record may also lack a driving licence, passport, or other official documentation, so the banks have been encouraged by the FCA to accept documents such as a letter from an employer or a hostel manager. For people without many official documents, the ID criteria may therefore be one of the things to look for when choosing which bank they should approach.
Can anyone open a basic bank account?
An important distiction between banks offering these accounts is their attitude towards bankruptcy. Although discharged bankrupts can be accepted for most basic accounts, undischarged bankrupts will find the choice much more limited, but there are several accounts which are specifically suitable for this group. It is also true that anyone with a criminal conviction for fraud is unlikely to be allowed to open a basic bank account.
Do basic bank accounts require a credit check?
Even poor credit rating bank accounts may require checks to be carried out, but there are some accounts which are advertised as not needing them. This could be a useful point of difference for people who are trying to improve their credit score, because every unsuccessful credit check can impact negatively on the score. Guaranteed bank accounts do not require credit checks.
The last resort – guaranteed (managed) bank accounts
As its name suggests, a guaranteed bank account is available to everybody, provided they are over the age of 18 (or sometimes 16) and resident in the UK. No credit checks are involved. However, the range of available services is more limited, and spending has to be done via a prepaid card. There are monthly charges, and fees for some transactions too. The alternative name, ‘managed’ accounts, refers to the fact that the bank will ensure that essential bills are paid first out of the account, which could be useful for people who are having difficulty coping with their finances. People with fraud convictions may be accepted for managed accounts.
How to apply for a basic or guaranteed account
It is best to do plenty of research to find out which account will be most suitable. The application forms to be found in bank branches, or on their websites, are generally for their regular accounts, so should not be used. It may be necessary to ask for a form, making it clear that a basic or guaranteed account is required.
The advantages of opening a bank account
In addition to the convenience of being able to manage payments and income in a current account, a basic account has the extra benefit of starting a relationship with the banking system, which could pay off later. The account holder’s credit score will improve over time, and the bank may be prepared to consider a regular current account in due course.