Current accounts have become an integral part of modern life. You use your current account to receive your salary and pay the bills, set up direct debit payments and more. It is convenient and easy to manage, economical and secure, offers you flexibility and can be used widely. But when you have a bad credit score, all this ease and comfort go out of the window. You may not qualify for a standard current account at many banks if your credit rating is poor.
What can you do in this situation? There is a solution, and it is to apply for a bad credit current account. This is a variation on the standard current account which is structured specifically for those who have poor credit scores. There are two kinds of current accounts for bad credit holders – basic and managed types.
Basic current accounts are a no-frills version of the standard current account that almost every bank offers. The account allows you to receive money in the form of your salary, pension or child support payments. It allows you to make payments from the account, either through direct debit arrangements or using a debit card. But there is little else that you can do with a basic current account. You cannot avail of overdraft facilities. If your account balance drops too low and you don’t have enough money in it to cover your existing direct debit contracts, the bank will levy a penalty which can be as high as 25 pounds.
Despite the extremely limited nature of the services provided by a basic current account, you may have to clear a credit check to be approved for one. In case there are blemishes on your track record, such as a conviction for fraud or bankruptcy proceedings which have not been cleared, you may even be rejected for an account. In such cases, you still have recourse to a managed current account.
Managed bank accounts usually do not require a credit check. They differ from basic accounts in that you will be charged an account opening fee and a monthly maintenance charge. You will be required to charge your prepaid debit card with money, and can then use the card to make purchases and payments. Some banks will extend a cash back facility for these payments made using your card. Even cash advances can be drawn from ATMs and card processing machines, though a charge may apply for each withdrawal.
Bad credit current accounts of either type are suitable for customers who have a low credit rating but are looking for a way to rebuild it again. By being able to use direct debit payments for utilities, mortgage payments and bills, you can take advantage of the discounts and other perks that service providers offer customers who pay this way. It also ensures that you won’t forget to make a payment by the deadline, as the entire process is automated. You only need to make sure that there is enough money in the account to cover those expenses.
As you regularly meet your financial obligations without any delays or defaults, you can build back your credit history. Over time, you may reach the point where you qualify for a standard current account with all the benefits, in which case you will need to know how to switch current account to a better model.
If you can only open a managed current account, then you might not be able to enjoy all the benefits of a direct debit payment system. Most of the other advantages of a basic current account are available to you, even if you might have to pay a monthly fee for them. That is the major drawback of a managed account. Most banks will charge around 12.50 pounds to open a managed account, and the same amount every month as account maintenance charges. Each time you draw money from an ATM, a transaction charge will apply.
The lack of an overdraft facility with either of these bad credit current accounts can be a mixed blessing. While you are certainly inconvenienced by not having access to funds in an emergency or due to an unexpected cash flow problem, it also helps build your financial discipline by eliminating the tendency to rely upon overdrafts and training you to become a better money manager.
You will not be paid any interest on your account balance as you might with a standard current account. This will change once you get back your credit rating through financial discipline and you are able to secure a standard current account.
Laura Ginn appreciates that many people will never change their current account, staying loyal to the one bank throughout their lives. If you would like to switch but are unsure how to do it check out the free helpful advice available on the uSwitch.com website.