Does overdraft affect mortgage application/credit rating?

HR1_2

I think the comments which followed my post have clearly demonstrated that no-body likes criticism. I'm not actually criticising the advise, just sometimes its a little harshly put and as such can be disrespectful. If you read this forum's code of etiquette it quite rightly asks everyone to be mindful that many people whose financial problems exacerbate mental health issues seek help in the forum, but this means you may be berating someone who’s clinically depressed... phrases such as 'why the hell would I lend you money' even as a hypothetical statement from a mortgage lenders perspective are overkill and could upset. Much love ODB - from nutjob

jamesd

rharwin, a bank and other lenders are likely to view routine usage of an overdraft facility as you described as a sign of an inability to properly manage finances and a fact that makes you higher risk. Also as a sign that you may be in financial trouble. The reason they view it in this way is because overdraft facilities are really intended for short term borrowing, not continuous use. Using it in this way is undoubtedly harming your internal credit score at the bank and affecting what and how much borrowing they might offer you. For them this is less bad because you are a profitable customer for them, so they might want to offer you more borrowing to increase their profit at your expense.

For longer term borrowing it would be best to use a personal loan or credit card. A credit card 0% balance transfer from Virgin or other card provider that lets you transfer a balance from your current account would be one good approach to consider.

Alternatively you might seek a 0% for purchases card and try to do as much of your normal day to day spending as possible on the card, so you end up with the £1000 owed on the card at 0% instead of in the overdraft you're paying money on.

Use of cards in this way is not very negative for credit scores because they are intended for longer term borrowing. It'll still have a small effect because a lender will do something like considering 3% of the balance each month as part of your regular spending. That will reduce affordability for other borrowing, including mortgage borrowing.

This doesn't necessarily mean that you actually are unable to properly manage finances, it's just how banks and other lenders treat routine use of an overdraft facility. In your case you do manage your finances to keep within the overdraft limit, but not to reduce it even gradually. Gradual reduction would be a positive factor. The card is probably the best way to go because the reduced interest payments will give you some financial safety margin you can use to reduce the debt.

property.advert

You would need to know whether your credit record actually shows any borrowing on your current account and whether your proposed lender requires bank statements. I am told that Nationwide does not report balances on accounts and as such, if true, then that information would not be on your credit record. If your lender did not need to see bank statements, then they would never know.

milliebear00001

I use my OD because of the way payments fall (i.e. payments going out before income comes in). The 'incomings/outgoings total always reads as about the same for the month though. Is this likely to be a problem also? I was thinking of maybe holding off on a mortgage app so that my statements show my account to always be in credit. Should I do this? How many months do lenders usually want to see - 3 months? 6 months?

jamesd

property.advert, worth checking whether they report borrowing balances or not. That's use of credit and they might report that even if they don't report credit balances.

milliebear00001, it's better if you're clearing it and using it again than if you're always overdrawn. The shorter the time, the better.

If you're a very good mortgage candidate it's probably not worth waiting. But if you're using the overdraft regularly you aren't going to be as good as I mean by that, because that would mean you would have so much in savings that you wouldn't need to have the overdraft balance at all.

Three months is usual for mortgage applications and if there's anything marginal about your application for some other reason it might make sense to wait.

My own application, just about to happen, is one where I wouldn't bother waiting. Savings and investments value is greater than the total of all unsecured borrowing plus the requested mortgage amount and the deposit is at least 25%. Should be an easy yes decision because my credit report is also fine. But you never know and I could be surprised.

eschaton

People who get all protective need to be realistic and stop being mushrooms.

Anyone that can't even get out of o/d and is looking for a mortgage needs taken away in a white van.

Anyone taking a mortgage out in that situation will be homeless after reposession before a fly could land on a fresh dog turd.