Agreed Overdraft is bad? Or OK for my credit rating? (Student account)

waqasahmed

Just been reading up a bit here:

http://www.moneysavingexpert.com/students/Student-bank-account#currentstooze

And my intention was to get the max overdraft, and intentionally completely max out the overdraft, to transfer to a savings account, but I've been reading that this can affect your credit score?

I thought it only affects it, if you go beyond your agreed limits?

trikidy

Would affect the internal score, but if you stay within the limit then your outside score should be fine

paulmapp8306

it affects if you dont mke the minimum payment on loans. an agreed overdraft that isnt paid off fully at the end of every month is "technically" outside the minimum.

Having an OD that you use during the month then fully pay off by the end of the month is GOOD for your credit score (your borrowing but clearing it every month). Having one that is used but not to its limit, then partially cleared every month (say to 50% of its limit) is neutral provided your in the black at some point (usually payday). Having an OD that is maxed out every month is BAD.

Exceeding your OD limit is unagreed lending and would wreck your score very quickly.

paulmapp8306

Oh - I really dont know why you would do what you intend. The interest you will pay on an agreed overdraft will be higher than you will make on your savings account.

Seriously BAD idea.

Voyager2002

paulmapp8306 wrote: »

Oh - I really dont know why you would do what you intend. The interest you will pay on an agreed overdraft will be higher than you will make on your savings account.

Seriously BAD idea.

Overdrafts on student accounts are generally interest free.

The OP's idea is in principle a good one. My main criticism is that deposit interest rates are so low that the maximum interest s/he could earn would probably not be enough to justify the time and trouble involved.

So far as the credit score is concerned: what is most important is that you should NEVER miss an agreed payment, nor go over the limit they have set you. I suggest that you never get within less than a hundred pounds of your overdraft limit (allowing for the unexpected) and at the beginning of each term put your account back into credit.

InsideInsurance

Credit scoring is complicated and each lender has its own formula for rating you.

In principle an overdraft facility is fine and if unused will help your utilisation rate however new lenders will consider the scenario of you maxing out all your current facilities and could you still afford to pay that plus what your asking them for (so its a double edged sword depending on what other facilities you have and your income etc)

To max out the overdraft is almost certainly bad from a credit scoring perspective given it increases your utilisation rate and for two there is a general concern about anyone who permanently lives in their overdraft even if it is interest free.

For a real world example, I have a perfectly clean history, decent salary, not a massive amount of limits and very low utilisation. I do however have an interest free overdraft facility so every single bill goes out the day after payday, I then used to max out the overdraft leaving £200 as emergency cash and all spending was then done on point/ cashback earning cards and the money transferred into savings.

When I applied for a MBNA card and was declined I did actually manage to get to speak to someone who was actually willing to talk (rather than computer says no) and they said it was declined purely because I was constantly living in my overdraft.

I moved money from savings to clear the overdraft, waited a few month, applied again, got the card, transferred the money back into savings.


Of cause credit rating are moveable things, up to you to decide if the interest on a £1,400 student overdraft stuck into savings is worth not being able to have any new lines of credit outside the lower/ sub prime market

BugsyBrowne

MBNA might have said that to you about living in your OD but this defiantly don't apply to Barclaycard or Santander or sainsburys credit cards as my missis has lived in her Barclays overdraft since day dot she's always £1500 overdrawn but the above lenders all gave their credit cards with decent limits.
Also know mates who never get turned Down for credit who are also always in their OD.

I personally think its a big misconception that lenders are put off by people who lives in their overdraft as long as they're got an excellent credit history is all that matters.

InsideInsurance

Hence my very first line.... it is complex and unique to each lender

BugsyBrowne

InsideInsurance wrote: »

Hence my very first line.... it is complex and unique to each lender

Yep just spotted that.

With banks internal scoring its unplanned overdrafts, bounced cheques/ direct debits etc are killers.

waqasahmed

Voyager2002 wrote: »

So far as the credit score is concerned: what is most important is that you should NEVER miss an agreed payment, nor go over the limit they have set you. I suggest that you never get within less than a hundred pounds of your overdraft limit (allowing for the unexpected) and at the beginning of each term put your account back into credit.

I have several bank accounts. I always have that amount in my main account tbh.

I was more thinking intentionally max out the overdraft at Co-op and continue to use my Lloyds account (and have student loans paid in to Co-op)

I don't think I have a need for a Co-op credit card tbf. The only card that Im realistically thinking about getting are cashback cards, and I have two of those (An aqua, and a capital one classic extra)

I have a Lloyds TSB Platinum card to give me more available credit to spend. Really, the only cards that I would *want* in the future, would be the Halifax clarity card(Halifax reward account included) and the Capital one aspire world, but I don't have the capital for that

And perhaps the Santander 123 card, but then I don't know my spending habits for things like petrol yet, which is where most of the cashback comes from, along with the relevant 123 current accounnt

Sharon87

I personally would do what you plan if I was in your situation, put the OD money into a savings account. It all depends on a few things, in the next couple months/years do you plan on applying for credit cards/mobile phone contracts/mortages/loans? If not, no reason not to. And if you decide to plan to, just pay off your overdraft with the savings and voila.

It wont affect your credit score in the long run, only the short run. Whereas if you default on a credit card that takes 6 years to be cleared from your credit report.

Most banks I think expect students to live in their overdraft! As long as your student loan goes into that account, that's the main thing, and every 3-4 months so it will get cleared when your student loan goes in.