Does Your Credit Score Make You “Unbankable”?

CFPB evaluates how banks use credit to blacklist customers

Bad credit could make you unbankable

Most people know that a bad credit score can prevent a consumer from qualifying for loans and credit cards, but did you know that it can also keep you from opening a bank account?

The Consumer Financial Protection Bureau (CFPB) has raised concerns about policies that banks use to review potential customers who apply for new account. Complaints have been made that negative information on a consumer’s credit report can prevent consumers from qualifying for accounts. It’s a condition known as being “unbankable” and it can put you in a bad financial position if you get into this type of situation.

The CFPB’s main issue with credit review practices by banks is that consumer reports are being used, “as crude ‘black lists’ where consumers are turned down for an account simply because their name appears on the list.” This statement comes from CFPB Director Richard Cordray, who continues, “We envision a process that better understands consumers’ needs and can provide an account that is appropriate to their personal circumstances.”

The CFPB’s idea is simple – if you have a bad credit score, it makes sense that you can’t qualify for traditional credit lines, but you still have alternatives, such as secured credit cards, that you can use to build credit and get where you need to be. On the other hand, as the system stands now, if you have bad credit, you may simply be turned down for a bank account with no alternatives offered.

That leads to this “unbankable” condition where consumers can’t even use the most basic tools in our financial landscape, like checking and savings accounts. That can make it harder to manage money and do simple financial tasks like paying bills. It can also mean that you lose income out of every paycheck for things like check cashing and money order fees.

“It is one thing to use a credit report or similar type of consumer report as a means of assuring consumers do not take on more risk than they can handle,” Cordray admits. “Indeed, the bureau would be concerned if banks or credit unions were to grant credit to consumers without regard to their prior credit history.”

With that in mind, the CFPB would encourage banks and credit unions to use consumer credit reports, but instead of barring a consumer from getting a bank account, a bad credit score would mean the financial institution would offer accounts that are specialized for people who struggle to maintain a stable financial outlook.

“It’s understandable that banks would be wary of consumers who may have struggled with credit in the past,” says Gary Herman, “but that shouldn’t put people in a situation where they don’t have any options to help build a stable outlook and budget. New regulations may even motivate banks to come up with new tools that can help consumers learn and grow as credit users.”

What to do if you’re “unbankable” right now

Of course the CFPB has only recently began their investigation of these practices, so if you have bad credit and need a bank account now, you may be stuck in this “unbankable” limbo. So what do you do?

  1. First you need to get a handle on any debt that’s causing your credit score issues. Start by talking to a certified credit counselor to see if you can use a debt management program to consolidate your debt so you can regain control, or if you need a different solution.
  2. Once you have debt under control, review your credit reports to see what they say about you. If there are negative items that you think are old, outdated or incorrect, then consider going through the credit repair process to have them removed.
  3. Finally, you need to take steps to rebuild your credit. Pay loans and credit cards on time. If you don’t have any debt to pay off so you can build credit, consider getting a secured credit card with a low credit limit that you can use to build your way to the credit score you need.
  4. After about six months, reapply for a bank account with the financial institution of your choice to see if you have done enough to get the accounts you need.