It can be worrying when you realise that your credit score is not good. Why? It limits what financial products you have access to since banks typically steer clear of people with bad credit.
If you currently have bad credit and want to switch to a different bank account, you may be wondering if your credit score might be an issue. But that is not something you need to worry about. Bad credit does not necessarily prevent you from being able to open a bank account.
Your credit score is an ever-changing history of your interactions with credit providers. The good news is that your credit score can be improved with some good financial habits. In fact, a bank account, especially a savings account, may be one of the key assets to helping you gradually boost your credit score.
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Do banks run a credit check when opening a bank account?
A credit check is run by a bank or lending institution when you are applying for credit such as a home loan, personal loan, credit card or even a mobile phone plan. However, a bank account – including both an everyday account and a savings account – are not forms of credit. This means that your credit score or potential bad credit history does not factor into your ability to get a new bank account.
Your bank knows your credit score and so should you. Check your credit score for free as often as you like, and monitor it for changes.
Can you get an overdraft with bad credit?
An overdraft is considered to be a line of credit, so it’s very likely that a credit check would be run prior to approving an overdraft. This means that you will have difficulty getting an overdraft if your credit score is very low, because the bank will consider you as a high risk of not being able to repay the overdrawn amount.
Does having a bank account help improve your credit score?
Having a bank account can help improve your creditworthiness if used correctly. A bank account is like a paper trail of your financial choices, so if you can build up a history of regularly adding money to savings accounts and demonstrating good financial habits over a period of at least six months, this can help improve your bank's opinion of you.
Although your non-credit bank account transactions will not appear in your credit history, and so won’t affect your credit score, they could still come into consideration by a bank when you next apply for a credit card or loan.
Apart from running your bank account properly, there are several things you can do to improve you credit score.
What does disqualify you from opening a bank account?
To be approved for a new bank account you must meet a number of criteria. This usually includes:
- Being 18 years of age or older in most cases
- Being an Australian resident with an Australian address
- Providing 100 points of identification for verification purposes (see this example from NAB)
- Providing your tax file number can be useful, to avoid having tax withheld from any interest you earn
When can a bank refuse to open a bank account?
Failure to provide any of the above information is likely to result in a delay or disqualification from being able to open a bank account. Be sure to supply all the relevant information before submitting your application for the best chance at success.
