Overdraft usage

andyfromotley

I have a First Direct free overdraft of £250. i use most of it every month but i NEVER exceed it. I have around 2k in savings.

i am happy with how i manage my current account but does using this overdraft every month affect my credit 'rating'. Obviously i could transfer £250 out of my savings into the current account so that it is always running in credit, i just like all my savings being in one separate place! Any advice?

Thrugelmir

Is the overdraft "free" ?

andyfromotley

yup free, no arrangement fee, no interest. Its standard with FD. I wouldn't use it otherwise.

YorkshireBoy

I ran a maxed out £10K Santander O/D facility for several years, firstly fee-free, then £5 a month, then £10 a month. When they went to £20 a month I paid it off, because I couldn't make a worthwhile stoozing profit on it.

A couple of years ago I did the same with 3 x Nationwide FlexDirect accounts, totalling £7.5K.

I never experienced any credit damage attributable to this activity. However, two things would put me off doing the same these days:

1. Lenders are more keen with credit scoring, and
2. If I wanted a mortgage/remortgage anytime soon.

I was OK with £7.5K and £10K because it was making me, at the time, several £100s a year in savings interest. Have you sat down and worked out what you're making from your £250? Even if it's sat in a TSB Plus account making 5% AER, that's only £20 a year after BR tax deducted. Is it really worth even potentially damaging your credit rating for such a small return?

andyfromotley

No its not worth it but i am trying to find out if it is in fact damaging my credit rating.

CLAPTON

andyfromotley wrote: »

No its not worth it but i am trying to find out if it is in fact damaging my credit rating.

presumably the regular use of your OD shows on your credit files

potential creditors may view being permanently in an OD shows you don't manage your money well

the benefit to you is extremely modest: the risk is quite large

Thrugelmir

Lenders will use their own systems to "score" you. So in all likelihood overdraft usage will score negatively. Whether this factor in isolation will result in a decline is an unknown.

andyfromotley

ok ty, i shall transfer across from my savings to cover it, it really is such a small benefit that its not worth any risk as i may be remortgaging in oct. Thanks again.

YorkshireBoy

andyfromotley wrote: »

No its not worth it but i am trying to find out if it is in fact damaging my credit rating.

No one here will be able to answer that with a factual yes or no.

But ask yourself a question...why do you think the industry reports overdraft facilities and debit balances to credit reference agencies?

And then try and second guess whether they'll look at the debit balance and say "it's OK it's only £250. And it could be FD who we know give the first £250 for free", or whether they'll say "crikey, this guy is living beyond his means, and can't manage his money month-to-month".


EDIT: We cross posted. I think you've made the right decision.

manami_mnm

YorkshireBoy wrote: »

But ask yourself a question...why do you think the industry reports overdraft facilities and debit balances to credit reference agencies?

Because it is a form of bank credit.