Using overdrafts to improve credit score

Credit_Newbie_2

Hi all,

I am currently looking to improve my credit score and I was wondering whether I can use a couple of old current accounts which I rarely use in order to do so.

These accounts are rarely used and not overdrawn so currently on credit reports they appear as lots of Ns (N – Facility not used). Would it look better on my credit report, and improve my score, if I used these accounts on a monthly basis making the account overdrawn and then paid the amount back within a few days?

I assume it would improve my score as it would then show as 0s (0 – Payment received on time), please can you confirm my logic is correct on this?

Many thanks

Moggles_2

It's not necessary to go overdrawn. Use of a current account, which is always in the black, would result in a nice string of zeros.

That said, if the bank that holds your main current account (the one to which your salary is paid) already reports to the credit reference agencies, I doubt whether use of an additional current account with another bank would improve your credit score.

For tips, have a look at the *Credit Rating: how it works and how to improve it guide* especially Martin's *Manage and Improve your credit score* article

http://www.moneysavingexpert.com/ban...-score#improve

CLAPTON

being permanently or often in your overdraft will usually be view as some-one in financial trouble.

NickX

CLAPTON wrote: »

being permanently or often in your overdraft will usually be view as some-one in financial trouble.

Hmm, I don't agree with you here. Provided the overdraft is Agreed rather than Unauthorized, then I think it would just be seen as another Credit Facility along with any other Credit Card accounts.

However, I would never recommend paying interest with a view to improving your Credit File - its really not worth it. Why not get a 0% purchases card (12 months is currently available from Tesco) and use that efficiently to increase your credit profile ?

CLAPTON

NickX wrote: »

Hmm, I don't agree with you here. Provided the overdraft is Agreed rather than Unauthorized, then I think it would just be seen as another Credit Facility along with any other Credit Card accounts.

However, I would never recommend paying interest with a view to improving your Credit File - its really not worth it. Why not get a 0% purchases card (12 months is currently available from Tesco) and use that efficiently to increase your credit profile ?

You may or may not be right

but my view is, if you were a potential lender for say a loan and then you say that the person was always in their OD, wouldn't you be concerned about how they were going to repay the loan?

never-in-doubt

CLAPTON wrote: »

You may or may not be right

but my view is, if you were a potential lender for say a loan and then you say that the person was always in their OD, wouldn't you be concerned about how they were going to repay the loan?

Overdraft balances are not reported to the CRA's though. So unless you showed the lender your statement they would never know.

Regards to the loan provider, why should it matter if the person is in their overdraft? As NickX says, so long as he does not exceed it then it is the same as being within your credit card limit; I have a mate that always maxes his out then he moves money into it - by the way he earns over £150k p.a. and is very well off, but he utilises his overdraft to the max. I ask him why and you know what he says? Cos I can and it feels good owing the bank money! Thats a snob for you but goes to show that not everyone 'needs' an overdraft!

Out of interest though, he is slap-dash with money and I bet he doesn't top his account up cos he always loses his card so I bet he got recommended to live within his overdraft to reduce exposure to theives! who knows! (weirdo) :rotfl:

YorkshireBoy

never-in-doubt wrote: »

Overdraft balances are not reported to the CRA's though.

The £9,994 debt on my £10,000 overdraft facility with A&L is reported to both Experian and Equifax.

Regards to the loan provider, why should it matter if the person is in their overdraft? As NickX says, so long as he does not exceed it then it is the same as being within your credit card limit...

I disagree, and agree (on balance) with CLAPTON...

Firstly, with the new CRA reporting format, not only is the current overdraft balance shown, but a complete 12 month history of it's use is available for all to see when they search your file.

Secondly, overdrafts are repayable on demand. Credit card debt, on the other hand, isn't. Lenders will pay more attention to overdraft balances, and history of use, because they know that a similar level of debt on credit cards only requires a, say, 3% per month servicing requirement and cannot be 'called in'.

naijapower

Overdraft balances are reported by some banks to CRA. I know Barclays does.
I agree with the notion that being constantly overdrawn doesnt help if you apply for further loans etc from a 3rd party and they request to see your bank statement.
They would only approve if they feel it would help your situation. That is, if the new loan could help reduce your monthly outgoing and aid your affordability which means you are less likely to become constantly overdrawn. Although you would still have the loan to pay back over a longer term

never-in-doubt

YorkshireBoy wrote: »

The £9,994 debt on my £10,000 overdraft facility with A&L is reported to both Experian and Equifax.I disagree, and agree (on balance) with CLAPTON...

Fair enough so banks are starting to report this (my bank doesn't - HSBC).

YorkshireBoy wrote: »

Firstly, with the new CRA reporting format, not only is the current overdraft balance shown, but a complete 12 month history of it's use is available for all to see when they search your file.

Its not new - its just that banks seem to be doing it now which is new to the banks, they can only obtain history that has been uploaded - banks that start the process will not upload years of data, they will surely just start to record it one day - or are you saying they already post like 6yrs history?

YorkshireBoy wrote: »

Secondly, overdrafts are repayable on demand. Credit card debt, on the other hand, isn't. Lenders will pay more attention to overdraft balances, and history of use, because they know that a similar level of debt on credit cards only requires a, say, 3% per month servicing requirement and cannot be 'called in'.

Well maybe we ought to push for CRA's to record data of savings accounts then cos like you say, you're £10k o/d but have you invested it in savings (stoozing?).... knowing you I suspect so therefore it would be an incorrect assessment to assume you're £10k overdrawn.

It seems all the pro's are stacked with the lenders and the cons with us!

jacktom_2

It's not necessary to go overdrawn but thanks for the post

Credit_Newbie_2

Hi all,

Thank you for all the responses, unfortunately I think my point may have been slightly misunderstood.

Currently the current account in question isn’t really used so balance is generally around £0 but always in the black, as a result on my credit reports the account shows as N “facility not used”.

My question is, if I were to go overdrawn for a brief period once a month, for example buy a CD then transfer the funds into the account 2 days later, I assume the reports would then indicate 0 “Payment received on time”.

Would this look better on my credit reports?

Thank you for your views