Caroline Ramsey
If you need a bank account for any reason but would struggle to be accepted for a regular account due to poor credit history, a prepaid bank account or ‘no credit check’ bank account could be the answer.
Many people don’t realise that a credit check is usually part of the application process for a bank account. If you have a very poor credit rating due to previous bankruptcy, CCJs against you or defaulted payments, you could be turned down for a regular bank account. However, this doesn’t mean that you’re out of options.
Many banks now offer simpler accounts called prepaid accounts, which limit risk to the bank by only giving you access to the cash you have paid into the bank. Although some features of a regular bank account won’t be available to you, like a debit card and an overdraft, you will still be able to pay your salary in, withdraw cash and use your cash card in most shops and online retailers.
Who might need to open a prepaid bank account?
If you have experienced financial difficulties in the past or have declared yourself bankrupt in recent years, you are unlikely to be accepted for a regular bank account. In addition, anyone with County Court Judgments (CCJs) against their name or those who may have eroded their credit record by repeatedly defaulting on credit agreements, may also struggle to open a bank account. In this situation, many feel they are in a vicious circle as having a bank account is all but essential to having a salaried job and doing simple day-to-day things like paying bills and buying items online.
This is where prepaid, or ‘no credit check’ accounts come in. They allow people with very poor credit rating access to these essential functions, but they also help them to manage their money and build up their credit score once more.
What are the main features of a prepaid bank account?
What they do feature:
- Accept payments from employers
- Allow cash withdrawals
- Come with prepaid cash card (often Mastercard or Visa)
- Facilitate direct debit bill payments
- Allow standing orders to be set up
- Bank transfers in some cases
What they don’t feature:
- Overdrafts
- In-branch services
What are the advantages of opening a prepaid bank account?
Prepaid accounts are essential for many people who have been refused a regular bank account but who need to be able to function normally in day-to-day life by doing things like paying bills, accepting a salary and making online purchases. Some potential advantages of this type of product are:
- Allows you to buy things online with a prepaid card
- Prevents you from getting into debt by not offering overdrafts and credit
- Helps you to build up your credit rating by using prepaid Mastercards or Visa cards
- Allows you to set up direct debits so you can pay bills through your account
- Allows you to transfer money to other accounts, which means you can pay friends etc.
- Helps you to manage and track your spending
- Enables you to get a salaried job and pay in your wages
- Allows you to take cash out of an ATM
- Some accounts offer you cashback on your purchases
What are the disadvantages of opening a prepaid bank account?
Although prepaid bank accounts can offer a lifeline to many people with very poor credit ratings, they also usually charge fees. They are also less flexible than regular bank accounts and rarely pay interest on your balance. It’s important to be aware of these disadvantages and to shop around for the best prepaid bank account you can find to suit your individual needs. The most common disadvantages are:
- Rarely pay interest on your balance
- Don’t allow you any leeway on payments that you do not have the funds to cover
- Usually charge fees for many transactions and functions
- You may need to pay to use your card abroad
- There may be a monthly or annual charge for holding the account
How can I get a prepaid bank account?
Before applying for a prepaid bank account, you’ll need to decide which account provider to go with. To do this it’s worth considering which account offers all the functions you will need while costing you the least. If you are likely to be paying in money several times a month, withdrawing cash regularly and setting up lots of direct debits, you might find that an account with a monthly fee but very few or no transaction charges would be the cheaper option.
Likewise, for someone who is not likely to make many transactions, a no-fee account with transaction charges would be cheaper. Once you have decided which account you would like to open, you can apply online. Although no credit check will take place you will need proof of a permanent UK address and may need to meet minimum age requirements for some accounts.
You will often have your account details within minutes and can start using the account right away.
Reasons you might not be accepted for a prepaid account
- You have been convicted of fraud
- You do not have a UK address
- You do not have a permanent address
- You are under 18
- The provider is unable to verify your identity
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