Credit rating and overdraft? 10 April 2012 at 6:38AM in Credit Cards 10 replies 81.3K views

moatmeister

Does having an overdraft affect my credit rating?

If so how and by what extent?

jon142

An overdraft is an agreed form of lending between you and a bank just as a loan, credit card etc is. an overdraft is usually repayable on demand from the bank and this is why they are easier to get ahold of than a credit card or loan.

An overdraft should be used as a temporary type of borrowing, It's not something that you should live in day in day out. If you are always in your overdraft with the bank and not repaying it chances are you will have a poor internal score with the bank. They like to see money being paid in that pays bank the overdraft.

The golden rule is an overdraft is the easiest and cheapest way of lending money short term. different lenders are looking for different things from there debtors.

To sum up I would say being in an overdraft is OKAY if money is going in to pay it back. If not your living beyond your means which will show as debt stress to lenders.

moatmeister

Sorry perhaps i didnt explain myself properly. In order to improve my credit rating everything else being equal, should I concentrate on reducing my overdraft or reducing my credit card?

jon142

Overdraft first then credit card.

Paul_01

Likely to be cheaper to do it the other way round.

There may be some advantage in terms of your internal credit score doing it o/d first, but not to your credit files.

Personally, I'd pay off the more expensive borrowing first.

moatmeister

Cheers, not about the cost, need to get my credit file into the best shape i can asap.

YorkshireBoy

Paul_01 wrote: »

There may be some advantage in terms of your internal credit score doing it o/d first, but not to your credit files.

I couldn't disagree more!

Prolonged overdraft use tells lenders, via your credit report, that you can't manage your money day-to-day/month-to-month.

Whereas it's natural to have a credit card balance each and every month, being as it normally comes with up to 56 days interest free.

Provided you're in authorised overdraft territory, and not with Halifax, Santander, et al who charge a daily fee instead of interest, the overdraft EAR isn't likely to be much more than the UK average credit card APR of 18.xx%.

And don't forget, overdrafts can be called in, at best, with 60 days notice...and sometimes, literally, on demand. Yet another reason for concentrating on the overdraft first.

Paul_01

Minimal benefits - this one issue in isolation is going to make very little difference.

Paully232000

Just a side question on overdrafts affecting your ability to get credit etc.

I have just realised that my bank account is not on my credit report with at least two of the credit reference agencies. All of my other borrowing, mortgage, cards, other bank account etc is on their and is correct.
Just curious if anyone else has had this issue, and whether it is a problem?

Just for information, I have been with said bank which is not on the report for 18 years, and the credit card with the same company is on my reports.

thanks

natscat84

I have a student account with a 0% overdraft - so I take that money and stick it in my ISA to earn interest. My OD is near it's limit, but it doesn't seem to have given me any problems in getting credit for other things.

Maybe student accounts are reported differently, but mine does appear on my Experian report

Experian_company_representative

Some banks only report overdraft facilities to the CRAs over a certain size eg £1000. If you ask the bank why yours is missing they should be able to tell you.

James Jones