Overdraft and Credit Rating

thegirlintheattic

Please forgive me for this very stupid question.

I have just discovered I have a current account with an overdraft (thought I had to apply for overdraft turns out I didn't). I'm looking to build up a credit history. Will simply having the overdraft be enough to do this or do I have to go into the overdraft then pay it back to create a credit history?

jamesd

It seems as though you don't have an overdraft but instead have an overdraft facility that is unused.

An unused overdraft facility will count towards your available credit but isn't likely to be worth worrying about. It's good to have it as protection in case of some problem with a payment, so nothing bounces if things go wrong.

A regularly used overdraft facility, an actual overdraft, can be seen as a sign of inability to manage money properly and could harm your credit score.

Having the overdraft facility will show some benefit to your credit history but you should really be considering something like a credit card (say a 0% balance transfer deal or 0% for purchases card) so you can show a balance increasing and being paid off regularly.

A small personal loan may also be useful. To keep the rate as low as possible you might go for say a £5,000 one to get a low APR then repay all but £100 of it so you have only a low ongoing payment and interest cost. You'd probably have to pay a couple of months of interest on the initial overpayment so don't borrow more than you need to get a decent APR.

Naf

If you use it a little and responsibly it'll show good on your file. Not as strongly as a CC or loan might (consider your local credit union: yo could kill 2 birds with one stone by taking,say, half out of the overdraft and depositing it with your credit union, then having them lend it back. This shows as a standard loan on your credit file, but they count it as a secured loan so the rate is much much lower. This way your current account will run as normal, just you'll drop into your overdraft and back out each month, and the loan will also show good credit history. Just a thought.) so possibly worth looking at one of these. The CC will not cost you interest if you simply clear it at the end of the month; consider using it for your groceries each month, and having a DD set up to pay the full balance.

thegirlintheattic

Thanks for your very detailed comments. I'm getting a credit card at the end of the month from my bank, I just have to wait to appear on the electoral role at my current address, one of their eligibility requirements.

I think I'll leave the overdraft alone for the time being as it won't have a big effect.

Daisy_Duck

Hi

It isn't a stupid question, don't worry.

To clarify- you do not need to use your overdraft facility in order to have it show positively on your credit file.

The fact that you have the facility means that it is a potential line of credit and therefore the account will show with the credit reference agencies.

Each month you will get the little green dot showing that you are keeping to the terms of your credit agreement as you are not going over your limit.

If you do use the overdraft be aware that your negative balance will be shown on the report- your account may look better without using it as this shows you are managing your money well.