Overdraft question

Marina2016

I am in a situation that by the end of each month I am living within my overdraft (limit £1,200). After repaying most other debt - credit card and loan I want to start clearing this overdraft. If I reduce my overdraft limit on a monthly basis eg £200 reduction a month will this have any impact on my credit file?


I am also in the process of doing a remortgage so don't want to do anything that will have a negative impact on my mortgage application.

[Deleted User]

The lower the debt, the more positively lenders will view you. Overdrafts in particular can be seen as a sign of financial distress, if you're paying charges.

But don't reduce the limit. Keep it but don't use it.

Marina2016

Out of interest why would you say not to reduce the overdraft limit?

PixelPound

It's not the overdraft limit, but your balance, the more you don't need it the better. Reducing the limit has very little impact, but it does risk you going over should one month be bad and you need it. Are you reducing it because whilst its there you would be tempted to dip in, so reducing it removes that temptation, or because you believe creditors would view a lower limit better than a higher one?

Craig1981

not reducing your limit and not using your overdraft will have a better impact on your credit utilisation.

so if you have credit cards with limits of 8800, and balances of £2200, your utilisation is 25%. with the overdraft at 1200 and not being used, your limits are 10k with balances of 22k, bringing your utilisation down to 22%

the lower the utilisation %, the better - it shows new lenders you are not reliant on credit

[Deleted User]

Marina2016 wrote: »

Out of interest why would you say not to reduce the overdraft limit?

It will generally be interpreted as if the lender sees you as high risk and is reducing your limit as you pay it down.

Thrugelmir

Marina2016 wrote: »

I am also in the process of doing a remortgage so don't want to do anything that will have a negative impact on my mortgage application.

Your credit file tells a lender all they wish to know in assessing your application. Overdraft (along with credit card and loan) will indicate your finances are stretched. If money is that tight minimising outgoings will do you no harm at all.

Your debt will impact the lenders affordability assessment.

Marina2016

Thank you for your advice. My credit utilisation is fairly low around 22%. I wasn't sure if having access to available credit was a good or bad thing to a lender. I have recently repaid a loan in full so that should update on my credit report soon. I didn't realise overdrafts were viewed so badly by lenders as have been concentraing on clearing loan (now repaid) and credit card. Now will focus on getting out of my overdraft but won't touch my overdraft limit for now.