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. 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.
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 can provide unparalleled perks and rewards that traditional banks could never offer. 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.
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.
