Will reducing my overdraft affect my credit?

sleepysocks

Hi all,

I am almost a bit embarrassed to ask this but here goes!

When I went to uni, I opened a student account with an arranged overdraft. I think it started off as £800 and then they increased it to £1000.

I want to clear this overdraft and it'd help if I could reduce it by half (I'd obviously pay what I owe first). By asking for the overdraft to be reduced, will it negatively affect my credit?

Thanks

[Deleted User]

Not particularly.

molerat

Reducing the overdraft limit may be considered as a new overdraft application by some banks which could mean a credit search which could affect your credit, this search may consider you unsuitable for an overdraft and be refused.

HelpfulTips

It may potentially have a negative affect dependant on how a lender looks at it. If you have a £1000 overdraft and are using £500 of it, your using 50% of what's available to you. If you were using £950 of it, your using 95% of your available credit. In effect, if you lower the limit your increasing your usage to availability ratio, but decreasing your availability to income ratio. I would suggest reducing it slowly, making sure your not leaving it close to yor balance as it may look bad that your right at the limit.

Ben8282

Reducing the overdraft limit is not a good idea. Just pay money into the account and the overdraft balance will reduce. If the repayment of the overdraft is to be done over time from income and you decide to repay £200 in a particular month, if the balance was -£800 on the date you were paid just be determined not to let the overdraft balance go more than -£600 the next month and so on until you never go overdrawn again.

Ebe_Scrooge

In general, having an overdraft available but not using it is viewed as a good thing - it shows potential lenders that other lenders are prepared to lend you money, and also that you're not living on the edge, so to speak, and constantly having to live off borrowed money. On that basis I'd leave it as it is and just concentrate on paying it off.


So it's good in terms of your credit history. The only downside may be if you want to borrow money in future. A lender will look at your existing available credit when deciding how much they're prepared to lend you. For instance, let's say a lender has decided, having viewed your credit history, that they'd lend you £10,000 in principle - they've decided that £10,000 is what you can comfortably afford to repay. But they see you have £1000 available on your overdraft, and another £1000 available on a credit card. Note that it doesn't matter whether or not you're actually using this credit, the important thing is that it's available to you if you should choose to use it.


They'll say, "If we lend him £10,000, then he uses his overdraft and credit card as well, then he's £12,000 in debt and he might struggle to repay us". So what they'll do is offer you £8000, meaning your total available credit is £10,000, which they've decided they're happy that you can manage.


Sorry, a bit long-winded, but I hope it explains things somewhat !

Calsa67

molerat wrote: »

Reducing the overdraft limit may be considered as a new overdraft application by some banks which could mean a credit search which could affect your credit, this search may consider you unsuitable for an overdraft and be refused.

Is this true with Halifax? Depending on the time of year I tend to reduce, increase or close my overdraft facility and it never appears on any of my credit reports. I have seen a balance on my report the odd time they have reported to a credit agency and I've been in my overdraft.

Always found it strange, wondered if it was to do with being pre-approved with them as it's all done using my online account and only requires my basic income and outgoings before getting an instant answer.

Sorry to the OP for hijacking.

smdabs

Increasing your OD shows on your credit file, reducing it does not. It would show on your CAIS (a very clever little system banks use to view the credit available to you) that this is the amount you could potentially spend.
They do NOT need to conduct a credit search for you reducing your limits.

If you plan to pay it all off, wait until you've done just that and then reduce it.

For a matter of £500 (which is genuinely peanuts to a bank), they are extremely unlikely to look at you UNfavourably if you decide to lower your limit. It will show on the system that you did previously have a higher limit (which if you stuck to - is great), and that you VOLUNTARILY lowered it, which is completely different to them lowering it for you.

It is completely up to you. If reducing your limit will give you some peace of mind... it really wont harm you (or your credit file) to do it.

lisa110rry

smdabs, I wonder if it depends on the Banking Institution concerned? I had a very high overdraft limit (£7,500) which was never used as it was raised for a particular purpose but the required funds from abroad were credited to my account the day before they had to be paid. Years later, when working in Africa, I decided that such a high pre-approved overdraft was a little dangerous, so I rang the bank with the Piggy family to lower it to £1000 (which also was never going to be used) and the Bank told me it would be considered a search on my credit file.

smdabs

Banking Institutions run by basically the same rules. The reason for the credit search is completed when you increase your limit is to determine affordability of this lending.

If you reduce it, it is therefore not 'lending' and thus does not show as a 'search' or as a mark or anything like that, all it does is show to other banks the amount you have available for that OD with that lender.

The only way reducing an OD would have a negative affect is if the bank reduce it for you due to re-occurring charges/going over limit etc.

Unfortunately, i think your bank may have misadvised you regarding your OD.

Calsa67

smdabs wrote: »

Banking Institutions run by basically the same rules. The reason for the credit search is completed when you increase your limit is to determine affordability of this lending.

If you reduce it, it is therefore not 'lending' and thus does not show as a 'search' or as a mark or anything like that, all it does is show to other banks the amount you have available for that OD with that lender.

The only way reducing an OD would have a negative affect is if the bank reduce it for you due to re-occurring charges/going over limit etc.

Unfortunately, i think your bank may have misadvised you regarding your OD.

Hi smdabs,

Could you possibly advise why none of my requests to increase my overdraft limit appear on any of my credit file under searches?

Thanks.