Opening a business bank account is a necessity for the financial success of any enterprise. However, prior to opening any business account, banks will execute a credit check on business owners to establish their creditworthiness. Your business, unfortunately, will be barred from having an account with most banks if it is verified that you have bad credit. Bad credit can be as a result of bankruptcy, defaulting payments, late payments, and court judgements. But you do not have to worry. There are several alternatives to consider in the event of denied access to a business bank account due to bad credit. But first, here is an outlook of everything you should know about bad credit and its influence on account opening.
Defining Bad Credit
Bad credit is defined as the incapability of a person to make timely payments for their bills or loans, and the forethought that they lack the capacity to process timely payments in the future. Usually, this is reflected on your credit report or score. A credit score is a compilation of your credit history which is done by companies known as credit reporting agencies or credit bureaus.
How to Know Your Credit Score
Credit Referencing Agencies such as TransUnion, Equifax, and Experian are the custodians of your credit file or report. They are required by law to provide a copy of the credit file to any individual who processes a request for their credit score. You can access this file online or get a hard copy from any of these agencies. Checking your credit score should be regular to ensure that you have an updated report of your credit status.
How to Upgrade Your Credit Score
Having a bad credit status does not have to last a lifetime. You can employ various techniques to upgrade your credit score, including the following;
Pay to Delete
This is the most basic approach to improving your credit score. It involves paying a credit reporting agency or credit repair firm for the removal of negative information available on your credit reports.
Clear Your Debts
Paying off your debts is crucial in the rebuilding of your creditworthiness. Once you clear all your debts, your credit score will improve after a while.
Avoid Unnecessary Credit Accounts
Opening unnecessary credit accounts can severely damage your credit score. This is because credit accounts lure you into accumulating more debt as well as increasing unnecessary inquiries on your credit score.
Process Timely Payment of Your Bills
Paying your bills on time can significantly improve your credit scores. Any delayed bills can worsen your credit score; you, therefore, need to make timely payments and your credit score will improve over time.
Alternatives to a Bank Account
If denied access to opening a business bank account due to bad credit, here are few other options to consider;
1. Basic Accounts
Basic accounts are designed to provide banking services to individuals with poor credit ratings at a lower risk. Basic accounts are devoid of credit checks, requiring you only to provide identification credentials for account opening. Basic accounts not only provide your business with a platform to keep money, but they also allow your business to set up direct debits. You can easily make payments in and out of your account without restrictions.
2. Credit Unions
A credit union is a community financial institution that is owned by its members. Becoming a member with a credit union provides you with a platform where you can manage the finances of your business. There are monthly fees surcharged on every member business. Fortunately, credit unions give businesses access to small loans that are not issued on the basis of your credit scores.
3. Second Chance Checking Accounts
A second chance bank account is similar to any other checking account. They are available for individuals with low credit scores, who are unable to access account opening with other banks. These accounts, however, come with extra fees, large amounts of deposits, and other imposed limitations. Banks do so to avail money to their customers as well as mitigate the likelihood of suffering massive losses.
4. Prepaid Bank Accounts
A prepaid bank account allows you to run financial transactions, store money, and receive your salary income through a prepaid card without running any credit checks. These prepaid cards also allow users to pay for their bills at a fee.
5. Savings Accounts
Most banks will allow individuals to open a savings account even when they have low credit scores. Having an active savings account will enable you to use it as a checking account with time. You can then build a rapport with the bank and file a request to open a business bank account with them.