Many people find that borrowing a bit of money when they need to is a handy way of giving their income a boost – for instance, if they need to cover the cost of DIY or some unplanned home repairs.

However, in the current climate, with living costs rising and disposable incomes falling, manageable borrowing could easily turn into debt problems if you find you can no longer afford your unsecured debts and you fall behind on your monthly repayments.

Debt problems can have a big impact on your finances. Missing payments could lead to mounting fees and charges, a damaged credit rating and – further down the line – legal action from your unsecured lenders (e.g. they may decide to apply for a County Court Judgment (CCJ) against you).

If you can’t afford your payments to your debts, you may have to enter a debt solution, which, although it could help you get on top of your debts again, could also affect your banking options.

Here we’ll look at how debt and bad credit could affect your banking options.

Debt solutions & your credit score

If you’re dealing with debt problems, you should get professional debt advice as soon as possible. You may be recommended a debt solution such as a debt management plan, IVA (Individual Voluntary Arrangement) or, if you’re having really serious problems with your debts, bankruptcy.

Although these approaches are designed to give struggling borrowers a realistic way of paying whatever they can towards their unsecured debts, each one will affect the borrower’s credit rating for six years.

Having a poor credit history can come with many financial consequences. If you’re looking to open a standard bank account, for example, you’ll be expected to pass a credit check before a bank will take you on.

As a result, if you’re currently on a debt solution, or have recently finished one, it’s quite likely your application for a current account will be rejected.

How could a basic bank account help?

Basic bank accounts – an example of which can be found here – are designed to help people who have otherwise been ‘excluded’ from banking in the usual way.

A basic bank account, as the name suggests, provides a ‘basic’ way of managing your money: you’ll be able to have any income you receive paid into your account, set up Direct Debits and standing orders to pay bills, withdraw your money from ATMs, etc. It won’t offer an overdraft or cheque book.

What’s more, a basic bank account doesn’t require a credit check, so if you’ve had debt problems in the past, they shouldn’t affect your chances of opening this type of account in the present.