Do Bad Credit Basic Bank Accounts Have Issues?

Cash Withdrawal Limits, Bank Overdraft & Cheque Book Not Available

Apr 1, 2009

Basic bank accounts are designed for bad credit customers. However, there are restrictions on cash withdrawals. No cheque book or bank overdraft are available.

The majority of consumers open a basic bank account because they are excluded from mainstream financial services. A bad credit rating excludes consumers from a regular account with bank overdraft, cheque book and over-the counter cash withdrawals. Bad credit bank accounts have only recently become available and greatly assist those with County Court Judgements (CCJ's), loan defaults and missed or late payments.

Basic Bank Accounts and Cash Point Machines

Whilst designed to prevent social exclusion, basic bank accounts have a restrictive policy with regard to over-the-counter cash withdrawals. Most banks 'encourage' basic bank account customers to withdraw their money from a cash machine. If the maximum amount that can be withdrawn is £300, a counter withdrawal minimum is set in excess of this figure.

Access to Over-the-Counter Cash Withdrawals

Financial institutions want basic bank account customers to use cash machines as there is little scope for selling other services via their sales team. A bad credit rating means that customers aren't eligible for the majority of financial services they are seeking to sell. A basic bank account is only offered because banks are obliged by law to offer one, but over-the-counter cash withdrawals are strictly controlled.

Bad Credit Bank Accounts and Credit Checks

Many consumers that have applied for a bad credit bank account will have been declined in the past. This is due to the banks performing a credit check on all new potential customers. Whilst the offer of a basic bank account may be a pleasant surprise, no credit facilities will be provided. However, the Natwest Step Account can be upgraded once a customer proves that they can manage money.

No Cheque Book or Overdraft Facility

A bad credit rating will mean that there is no cheque book or bank overdraft because of the risk of the borrower defaulting on the credit agreement. Some basic bank accounts will provide a modest buffer zone, but this will be little more than a few pounds. Many banks will also charge customers for going into this buffer zone.

Consumers that have been declined in the past because of a bad credit rating should consider applying for a basic bank account. Bad credit does drop-off a credit report after a period of six years, but a basic bank account is a useful stepping-stone until the opportunity arises for a mainstream account with over-the-counter cash withdrawals, cheque book and bank overdraft.

If a bad credit rating has been caused by default on a credit agreement signed-up to prior to April 2007, it is worth checking whether an illegal credit card or unenforceable loan agreement is in place. This could lead to the debt being written off and any adverse credit entries being removed.

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