Bank accounts let you store money and accumulate wealth without hiding your cash under a rug. Accounts in FDIC-insured banks offer protection for the first $250,000 in your bank account if the bank liquidates or funds get stolen. You can also create multiple bank accounts to categorize your savings and build towards important financial goals.
Opening a bank account presents many advantages, but some consumers are concerned about poor credit history. A low credit score creates more obstacles. You’ll pay more for utilities and have difficulty qualifying for a mortgage or personal loan. Even if you get a loan, lenders will set higher interest rates. Some consumers who understand these challenges wonder if a bad credit score will stop them from opening a bank account. We’ll cover key details if you want to open a bank account with bad credit and offer a few choices.
What is Considered Bad Credit?
A poor credit score isn’t subjective. FICO and VantageScore have credit score ranges with clear designations for poor, fair, good, and excellent scores. Both scoring systems have a 300-850 range, and the higher your credit score is, the better. A poor or fair score is considered bad credit. A poor FICO score is between 300 and 579, while a fair FICO score is between 580 and 669. FICO labels credit scores above 669 as good.
VantageScore uses different rules to assess credit scores. VantageScore places a stronger emphasis on payment history and credit history. They place less emphasis on credit utilization. Unlike FICO, VantageScore considers recent credit behavior and available credit when calculating your score. A poor VantageScore is between 300 and 600, while a fair VantageScore is between 601 and 660. VantageScore labels credit scores above 660 as good.
Things To Consider Before Opening a Bank Account With Bad Credit
You can open a bank account with bad credit, but financial institutions may provide fewer perks and higher monthly fees. Therefore, you should consider the following factors before getting started with an account.
Fees and Minimums
Some banks charge higher fees for people with bad credit. You may get zero relief if you try to withdraw more than your current balance. Overdraft fees can add up and make a bank account more expensive. You can use an app like Current to get overdraft fee relief for up to $200. Current doesn’t have hidden fees, but not all financial institutions are that generous. Big banks may use their credibility to attract consumers while charging hidden fees. Banks may require a minimum amount of transactions to demonstrate activity. Most minimums are reasonable, and you can move funds back and forth between two checking accounts to fulfill the minimum. If you only have one account, make small deposits instead of lump-sum deposits.
Balance Requirements
A high balance requirement restricts how much money you can withdraw from your account without incurring fees. You don’t want to get penalized for taking out your hard-earned money to cover an emergency expense. Banks without balance minimums won’t punish you with fees in these scenarios.
Services and Features
Mobile banking services have advanced since financial institutions created apps for their clients. At one point, it was revolutionary to see your bank account details and make transactions from your smartphone. These revolutionary features have now become basic necessities. As a result, banks need to stand out in different ways by offering services and features that help their users.
A Current Spend Account provides insights into your spending. This feature can help you lower your monthly bills, giving you more money to save or pay down credit card debt. Services like these offer more data and functionality for users. If a financial institution only provides bank account information and the ability to make transactions, you should opt for a more modern financial management solution. Online platforms often use soft credit checks, while traditional banks use hard credit checks. Receiving a soft credit pull will not impact your score, but a hard credit check can drop your score by a few points.
Perks and Rewards
Banks offer perks and rewards to attract new users. Some people will switch to banking apps that provide more for their users. Fintech companies like Current can provide unparalleled perks and rewards that traditional banks could never offer. A Current Savings Pod lets you earn up to a 4% bonus on your money. Traditional banks offer fractional interest rates that produce a meaningless return on your investment. The yield on treasury bills can provide higher returns than major banks.
Traditional banks such as Wells Fargo struggle to offer competitive perks and rewards because of their overhead. These banks operate many physical branches and hire more staff. Since Current is an online platform, the company gets to escape these additional overheads. Online banks like Current still invest in customer service and other workers, but they don’t have as many needs as traditional banks. This structure allows Current to reinvest extra funds back into clients. These reinvestments into the user base explain why Current can offer savings accounts with up to a 4% bonus even though traditional banks can’t come close to that number.
Are There Bank Accounts For People With Bad Credit?
If you have bad credit, you don’t have to worry. You can get a bank account and start making direct deposits. You can create a bank account with a traditional bank or Fintech company. We’ll share some important details about each path.
Traditional Banks
Some traditional banks have served customers for over 100 years and have many physical branches. You can drive to the nearest location and get your questions answered. You may become friends with some representatives and know who to call when you have questions.
The main advantage traditional banks have over their online peers is their convenient physical presence. However, this same advantage turns into a disadvantage since conventional banks can’t offer the same perks and rewards as fintech companies. Traditional banks also have more stringent requirements for opening a bank account or getting a loan. They charge higher fees and don’t offer overdraft protection. Traditional banks have more overhead, and they will charge you more money and set lower interest rates to cover their expenses.
Online Financial Technology Companies
You don’t have to create a bank account with a traditional bank. Financial technology companies provide a viable alternative that is often better than traditional banks. Fintech companies don’t have physical locations, but you can still jump on the phone with a representative or send an email. Some consumers prefer to talk via email or phone to avoid making an extra trip and sitting in traffic. If you receive a check, you can take a picture of it on your smartphone and automatically get the funds in your account. Fintech companies eliminate this trip to the bank as well.
You can communicate with a fintech company anytime and get a quick response. Traditional banks also do a great job of responding to clients, but some clients may feel attached to their representatives and local branches. As a result, they may feel less inclined to do business with a different branch.
Fintech companies offer a lower path to entry and more attractive rewards and features. Current offers spending insights that help you save money and avoid overdraft fees. If you spend more on your debit card than you have in your checking account, you don’t have to worry. Current has overdraft protection of up to $200. You’ll also get up to a 4% bonus on your Current savings account.
Several financial technology companies offer advantages you won’t find at a traditional bank. We’ve covered some of Current’s benefits, but you can only capitalize on their offerings by creating an account. You can visit their website to create a Current account or download their mobile app today.
