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Opening a New Bank Account: How Bad Credit Can Hurt You

Updated on August 12, 2010

From time to time, changes in bank management or relocating can result in individuals searching for a new bank. Unfortunately, if you have bad credit, opening up a new bank account can be challenging and give you more headaches than you need.

Banks check the credit of consumers to protect themselves from financial losses and ensure the highest level of profitability from future loan and credit applicants. Just because you have made credit mistakes in the past, however, that doesn't bar you from being eligible for a new checking or savings account.

How Bad Credit Happens

Numerous factors can damage your credit rating and contribute to a bad credit score. The following mishaps are the most common mistakes consumers make that contribute to a low credit rating.

  • Missing payments
  • Allowing credit card debt to be charged off
  • Having collection accounts
  • Past bankruptcies
  • Court judgments
  • Carrying high balances on credit cards

Know Your Credit Score

Just because you have a stellar credit rating now, that doesn’t mean you’re safe from errors on your credit report that can damage your credit rating and prevent you from being able to open up a new bank account. Even small errors in your credit record can have an alarming effect on your credit.

Before your attempt to open up a new account, check your credit report and take the necessary steps to fix any errors that you find. This will result in your score increasing and your new bank being more willing to allow you to open up a new account rather than denying your application due to your status as a risky customer.

Remember, banks pull your FICO credit scores. No other type of credit score will give you the information you need to decide whether now is the right time to apply for a new bank account. You can pull your FICO credit scores online directly from Fair Isaac by visiting

Check your credit score online.
Check your credit score online.

Why Banks Check Credit

Ten years ago, few banks checked the credit reports of individuals who were merely opening up a new checking or savings account rather than applying for a loan or line of credit. The bank saw little reason to evaluate the debts and payment histories of these individuals since they weren’t being loaned money. 

Over time, however, banks began requiring consumers to pay more frequent and higher fees for such banking accidents as debit card overdrafts and bounced checks. While the average customer would groan and pay the fee, some individuals opted to simply ignore the fee and open up a new checking account at another bank to avoid paying. 

Although modern banks use their own consumer reporting agency, Chexsystems, to detect customers who are likely to skip out on bank fees, delinquent accounts aren’t reported to Chexsystems immediately. Thus, individuals who owed fees had several months in which they were free to seek banking services elsewhere. 

Consumers with bad credit are more likely to incur banking fees.
Consumers with bad credit are more likely to incur banking fees.

Banking officials soon realized that the worse a customer’s credit was, the more likely he was to accrue fees and refuse to pay them. Bad credit often indicates a history of faulty debt management. This, in turn, leaves the individual more likely to make banking mistakes that would leave him with high fees. It also indicates that the customer cannot be trusted to pay the debts he accrues.

Because a bank can rapidly go from being a safe place to store money to a creditor, banks now check credit to weed out the consumers who are most likely to cost them money. 

The Lack of Additional Profit

Banks make the majority of their money by charging interest on loans and credit lines. They offer services such as free checking to attract individuals who may later apply for loans or lines of credit with the bank. Banks know that many people go to their own bank first for a loan rather than shopping around elsewhere. By offering checking accounts only to those with good credit, the bank can ensure that it doesn’t waste time and money processing future loan applications for those who may not qualify. 

Banks make big profits from home loans.
Banks make big profits from home loans.

Getting a Checking or Savings Account With Bad Credit

Just because you have bad credit that doesn’t mean that you will be ineligible for a checking or savings account, but it may significantly limit the financial institutions that are willing to take a risk by offering you one. In some cases, you may need to apply for a checking or savings account with an online bank while building your credit. Once you have an acceptable credit rating, you can then search various bank branches in your area for one that will accept you. An even better option, however, is if you can find a bank that does not check your credit when you apply for a new account. 


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