How to get a bank account with bad credit

What bank accounts are available with bad credit?

The two main bank accounts for poor credit are basic bank accounts and guaranteed – or prepaid – accounts. Choosing one can depend on how you want to use your account (for example, those needing to bank with a local branch can do this with a basic bank account from a high street bank, but not with a prepaid bank account). Another big factor is if you want to pay for your banking services, as basic bank accounts come with little or no fees while guaranteed bank accounts can come with several. Here we discuss each in a little more detail.

What is a basic bank account?

A basic bank account is designed specifically to help those who find it hard to open a standard bank account, for example if they have had previous credit problems or a low credit rating. Basic bank accounts are available from a number of UK banks and do not require a full credit check, other than a soft search for proving your identity.

Here are a few things you need to know about basic bank accounts:

• These are simple accounts that allow you to have money paid in from your benefits and/or wages, pay bills with direct debits and standing orders, and permit the use of a contactless debit card.
• There are no fees to open or operate the account, and many also do not charge fees for refused payments.

• You will still need to have ID to prove your address and identity in order to open a basic bank account. This can either be done electronically or through providing a valid passport, drivers’ licence, utility bill, benefit letters, council tax bill or HMRC tax notifications. There are two exceptions to this, with HSBC (in conjunction with Shelter and other charities) and Halifax (in conjunction with Unlock) offering very specific bank accounts for those with a criminal record and/or no fixed address. 

• You don't usually earn interest on a basic bank account and you’re unlikely to benefit from additional perks such as cashback.

• Basic bank accounts are designed to stop you from getting into debt as they don’t allow overdrafts, though some will offer a fee-free grace period if a payment from your account means you temporarily go overdrawn.

These accounts aren’t just for those with bad credit. They can also help young people who may not yet have a credit history, or those who want to avoid the possibility of getting into debt.

What is a prepaid bank account?

Guaranteed or prepaid bank accounts are card-based accounts that offer banking services. They too are more lenient on accepting those with lower credit scores compared to a standard bank account and typically don’t require a credit check, and provided you can prove your identity, you’re guaranteed to be accepted.

• All prepaid bank accounts include a payment card.
• Many let you set up direct debits and standing orders.
• You can only spend what you’ve paid in (either through your salary, benefits etc. or by topping up via pay points or bank transfer).
• You won’t have access to an arranged overdraft which means you cannot accidentally go overdrawn.
• They usually come with an app to help you manage your account and day-to-day spending.
• These accounts typically charge management and transaction fees.
• They’re not provided by traditional banks, and instead are available from fintech companies. This means they’re regulated by the Financial Conduct Authority (FCA) and have to operate to UK regulations, but if they fail, they are not covered by the Financial Services Compensation Scheme (FSCS). This might place your money at risk or delay you being able to access it, so it’s important to carefully weigh up your options.

Basic vs prepaid bank accounts

So which low credit bank account should you choose? Both prepaid and basic bank accounts operate on similar principles of accepting those with poor credit scores and providing a range of day-to-day banking services, but there are a few differences to be aware of.

Fees: Prepaid bank accounts generally charge management and transaction fees, while basic bank accounts do not. Fees you may come across with prepaid accounts include:

• Withdrawal fees
• Fees to top up the account
• Transfer fees
• Card fees
• Monthly account fees

Protection: Basic bank accounts are available from mainstream banks that are regulated and have full FSCS protection. However, your money is protected differently with a prepaid bank account, which are instead provided by fintech firms and operate under eMoney and Payment Services regulations.

This means they are authorised by the FCA and must operate to the standards set out in regulation, but they are not authorised by the Prudential Regulation Authority (PRA), and so any money in a guaranteed bank account is not protected by the FSCS. However, there are still rules in place which mean that providers must keep the money of their account-holders ring-fenced, offering additional protection.

Eligibility: Prepaid bank accounts don’t run a credit check and so it’s easier to be accepted, and provided you’re over the age of 18 and a UK resident, you’re highly likely to be eligible to open an account. With a basic bank account you’re still very likely to be accepted, but you could still be rejected for a few reasons, such as if you have a criminal record for fraud or you refuse a credit check. You may also find you’re rejected if you’re already eligible for a standard current account.

Alternative options

If bad credit bank accounts don’t seem right for you, there are a few other options you could consider:

• Credit unions offer basic bank accounts to those who are members, but you’ll normally have to pay a monthly fee.

• If you don’t need banking facilities but are looking for a way to build your credit score, you may want to consider a credit repair card These cards have low credit limits and are designed for making small transactions that you regularly pay off, helping show that you can responsibly manage credit to improve your rating.

• App-only banks. Some digital or app-only banks don’t run a hard credit check, so may be easier to apply for provided you don’t want overdraft facilities.