Yes, you can open a bank account if you have bad credit

Can I open a bank account if I have bad credit?

Having a low credit score or a history of credit troubles won't stop you from opening a bank account. A bank account is something you can use to hold and spend money: it is not a credit product.

Banks only worry about your credit score when you apply for:

• Home loans
• Credit cards
• Personal loans

With a bank account you're using the money you put into the account. There's no risk to the bank.

Overdrafts are a form of credit

The only time a bank account comes close to offering you credit is with an overdraft facility.

Let's say you had $100 left in your bank account. And then you get charged $200 for your electricity bill.

With an overdraft set up, your account will go to zero when the $200 payment is made. The bank covers the full charge, and you'll have a $100 overdraft debt.

That's credit. You now owe the bank $100. Most banks charge a fee or interest on the overdraft.

If you have bad credit your bank may not offer an overdraft on your account. But you can still open an account.

What information is in my credit report?

Your credit report doesn't contain a list of your bank accounts, because these are not credit products.

Your credit report contains information like:

• Your name, address and contact details.
• Previous credit applications you've made.
• Any current credit accounts held in your name, including repayment history.
• Any credit defaults, including missed loan repayments and late or unpaid bills.
• Any bankruptcies or debt agreements in your name.
• Request for your credit report from credit providers.

Finder survey: Do Australians know what a good credit score is?

How does my credit score affect my finances?

Credit agencies provide you with a credit score or credit rating. Scores come in bands:

• Excellent
• Very good
• Good
• Fair
• Poor

Note that agencies have different scoring ranges and names for these bands, but they're comparable.

A fair or poor credit score won't stop you from opening a bank account. But it will make it harder to get approved for a personal loan, a home loan or a new credit card.

Credit cards

If your credit score is low enough you may not qualify for a credit card at all. Or you may have to settle for a card with a lower credit limit.

Personal loans

In Australia, the rate on your personal loan is determined partly by your credit score. This is called risk-based pricing.

Borrowers with good or excellent credit scores can get lower interest rates.

Home loans

Having a higher credit score won't get you a better home loan rate. But lenders do check your credit history when you apply for a home loan.

A high credit score may increase the amount you can borrow.

4 tips to improve your credit score

So you don't need a good credit score to open a bank account. But improving your credit score is still a really good idea.

And it takes time to improve your credit score, so the sooner you start the easier it is.

1. Check your credit score. Identify and late or missed payments that are dragging your score down. If there are errors in your credit report, contact the reporting agency and request a correction.
2. Pay off those late or missed payments. Once you've paid off those late or missed payments your credit score will start to improve but it will take time.
3. Avoid taking on too many debts. Having some debt can actually help you build your credit score. But having multiple credit cards and personal loans will lower your score. If possible, lower your card limits and reduce your overall debts.
4. Build good credit. Making regular bill payments and having one credit card with a low credit limit (and paying it off in full each month) is a great way to improve your credit score.

Written by

Richard Whitten

Editor

Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio

Richard's expertise

Richard has written 554 Finder guides across topics including:

• Home loans
• Property
• Personal finance
• Money-saving tips