Overdraft

mgldev

Hi guys,

I'm on a long term mission at the moment: debt free by February 2017 (8k to clear), and 12k mortgage deposit to be achieved by Feb 2018. I've had lots of positives occur over the last year - namely a CCJ dropping off and 2 defaults from a time when I badly managed my finances.

I have a 3.2k credit card (currently being cleared) which once finished will only be used for monthly petrol bills for the commute to work - paid off in full each month. I know scores are meaningless but even as an indication I'm currently on 860 with Experian.

I want my credit file to be as clean as possible for when it comes to the mortgage application.

I've just logged in to my online baking (RBS) and I've seen this a few times: a dialog pops up saying I'll be instantly granted an 1.8k overdraft facility. I don't need an overdraft facility as I always stay well clear at the end of each month from going in the red - however from a credit file perspective can you see any benefit in having it?

1. Would opening the overdraft be seen as a new account and have any negative effect?
2. Would the additional 'available credit' be beneficial from a potential lender's perspective?

I'm expecting 'if you don't need it - don't take it' advice - as there's always a risk that as much as you say you'll never use it - you may fall foul of the trap - though I genuinely personally will stay well clear.

The only reason I'd consider it is if the view of my credit worthiness is increased due to it - otherwise I'll stay well clear of the button.

What do you recon?

Cheers,
Mike

DCFC79

Your credit score/rating is of no use, this thread is an example of the scores meaning nothing.

I wouldn't bother with the OD, surely (I cant be sure so I suspect someone more knowledgeable will answer) it would be classed as extra exposure to ore debt.

mgldev

Sorry guys - I'm answering my own post here - it was spur of the moment after having logged in and seen the offer again.

Most often when we end up in debt it's because we had access to money we never intended to use and due to whatever circumstances we end up in it - so regardless of any credit file benefits it's just not worth it.

Ignore this post!

Mike

mgldev

DCFC79 wrote: »

Your credit score/rating is of no use, -this thread- is an example of the scores meaning nothing.

OK - I see this quote all the time - and whilst I truly understand why people stress this point so much upon people is because many people don't understand the difference between your credit history (data) and the score (fictitious) - the statement isn't that black and white.

In this situation - forget the credit score.

Imagine a custom lender analysis algorithm built by the software engineers for a lending agency - the component responsible for assessing a customer's risk and profitability: it's going to take the raw data from the credit file such as: number of accounts, age of accounts, limits on credit card, limits on overdraft, public orders, payment frequency (late payments), defaults.

Each of those variables will be assigned a particular weighting and used in their calculations. A credit scoring agency such as Experian are simply applying a broad brush weighting to each of those figures to give the user an indication of which factors of their credit file could be seen as positive or negative.

Your average person may not understand which of those factors to look for, or what they mean. Whilst the score itself is never provided or utilised by a lender, such as a loan provider or credit card provider, the underlying data still serves as the source for their assessment of your financial position - plus additional information they may have (such as a bank having access to your current account spending patterns).

You should never rely on a CRA score - as it isn't what applications are based on - but I don't believe in quotes such as 'it may as well be jelly beans' or 'lottery numbers'. Yes - the CRAs are making a killing out of offering the score as a service people are willing to spend £15 of their cash on each month and constantly play a battle of 'must get extra points' - but if you're just after a top-level indication - poor, fair or excellent - it could be useful.

In this instance, regarding an overdraft, my initial thinking was that it could show potential lenders that the bank trusts me with an overdraft of that limit. Equally - it could be negatively score by a potential lender as there is more risk in the fact that I have such readily access to that much money - and should I go in to the overdraft - it could severely affect my affordability for the product I'm applying for - that is down to the algorithm in the lender's assessment engine.

Mike