Bad credit can be an obstacle when searching for a bank account, but there are still some viable options available to you.
First, work to raise your credit score if possible. Doing so can help open a bank account and reduce the likelihood of becoming indebted.
Basic bank accounts
Many banks and building societies provide basic bank accounts as a solution for those who find it difficult to obtain standard accounts due to poor credit histories. These accounts are free-to-use, do not charge a monthly fee, and come complete with a debit card that can be used in stores, over the phone or online.
Basic bank accounts don’t offer direct debits or overdrafts, making them less useful than a regular current account. Nonetheless, they can still help improve your credit score while you work towards rebuilding your finances.
Maintaining your balance and having enough funds in your account to cover any payments due is essential. Your banking app may even offer budgeting features which will categorise spending and prompt you to save for savings.
Challenger bank accounts
Challenger bank accounts offer several advantages over traditional bank accounts. These include lower fees, better rates and faster and more efficient banking services.
Challenger banks provide more personalised service by employing advanced technology to customise their offerings. They take into account customer behaviour such as spending habits and financial objectives to craft an individualised banking experience for each customer.
They achieve this through the provision of innovative products such as cashback rewards, savings accounts with high interest rates and loans with flexible repayment terms.
Many challenger banks provide mobile-only banking apps and digital-only accounts. These accounts tend to be quicker to open than traditional bank accounts.
Challenger banks can be an excellent option for people with bad credit in the UK, but they also come with some drawbacks. These include limited services and products, security concerns and lack of regulation. It is essential that consumers carefully weigh the pros and cons before making a decision regarding challenger bank accounts.
Guaranteed bank accounts
Guaranteed bank accounts are banking accounts designed with those in need in mind, offered by fintech firms and regulated by the Financial Conduct Authority (FCA). They provide access to standard banking products while still being accessible.
These accounts offer a range of banking services to those with poor credit scores, such as debit cards and online bill payments. Many come equipped with an app for managing money and daily spending.
Many of these accounts don’t charge any fees for day-to-day transactions, though some do. They usually have a monthly fee as well, which may be waived with certain relationship balances.
These are an excellent way to begin banking and begin building your credit score. Additionally, they can serve as a valuable tool in helping you avoid overdrafts or other costly fees in the future.
Overdrafts are loans that banks may extend to customers based on their creditworthiness. These funds can be used for paying bills and expenses when the customer’s account balance is insufficient.
Overdrawn bank accounts can be embarrassing for the person using them, and they may lead to other issues like bounced checks or transactions and a non-sufficient funds (NSF) fee being charged. On the contrary, an overdraft can be beneficial if used properly and promptly.
Some bank accounts offer overdraft protection to help prevent overdraws by linking the checking account to another, usually a savings or credit card account, that gets tapped in case of an emergency. This service may be free or only slightly more than the normal overdraft fee that would apply if the overdraft were declined.