Overdraft stoozing with student account - bad idea for credit score?

geek773

Hey everybody!

I'm 18 and, all being well on results day, I'm intending to be a uni student from September. I want to open a Nationwide FlexStudent account in August, which offers a 0% overdraft up to £1,000 in year one, increasing by £1k each year. I already have a 1.47% easy access savings account with AA Savings (and intend to open a top-rate equivalent account when that rate expires in a year).

In theory, I could stooze the freely borrowed £1k from the student account (plus more in future years) into the savings account - that'd only be worth about £14 but it's free money and good practice, and it might be more worthwhile with the higher limit in year 3, especially if interest rates rise.

However, I'm concerned about the impact of being deep in my first ever overdraft for the entire year on my credit report (currently good but almost entirely empty) - maybe they won't allow me to expand my overdraft limit in future years (it's not automatic), which could be a problem if I ever actually need to borrow the money. Maybe it could also affect my ability to get a good credit card during or just after uni, or even to get a mortgage in 10 years' time (although I'm thinking that's unlikely, since I intend to consistently use and pay off a credit card in the interim, once I have monthly income, which would be good for my score).

Thoughts on whether this could be damaging, or even whether it's worthwhile? Should I maybe just try to get a credit card and stooze with that instead, or use it normally to balance out the effect of the overdraft stooze on my credit score?

enthusiasticsaver

Personally I would not do that at 18. Sensibly managed credit with a history of paying debts off in full on a monthly basis is what builds up a good credit history. Lenders won't see you have savings so will just think you have borrowed the maximum. The savings rates are so low that the returns are not worth it for stoozing in my view. Some will disagree though.

Regular savers are what builds up savings with decent interest rates rather than juggling with borrowed money.

pinknsparkly

Using an ARRANGED overdraft won't adversely affect your credit rating. Mis-managing your arranged overdraft and going into your unarranged overdraft will affect it.

I would be very surprised if you couldn't extend your overdraft at the end of the year simply because you've been using it. In contrast, I would be much less surprised if they refused to extend an overdraft you've never used (on the basis that you don't need it!).

Keep in mind that you can also open more than one student account, with more than one overdraft (usually, check the T&Cs to be sure).

Since you talk about buying a house 10 years or so (i.e. not directly after graduating) it won't affect your credit rating at that point. And as for opening a "good" credit card - you're going to be more restricted as to what cards you can open by the fact that you're a student than the fact that you've got an overdraft. Being a student means you're likely to be offered quite a small limit (at least at first).

For what it's worth, I opened every single student I could get my hands on for the 0% overdrafts and saved the money in high interest savings. I think I generally had at least 5 student accounts on the go for the 5 years I was a student (4 year undergraduate course and then an MSc), and it didn't adversely affect me in any way after graduating.

You do, however, need to be VERY VERY VERY sure that you will manage the money appropriately, and won't simply end up with a large overdraft that you'll have to pay interest on when you graduate because you ended up spending all the money instead of saving it! If you think the money will be in any way tempting, then don't do it (especially given how low the interest rates are at the moment)

geek773

Thanks both for the replies. Worth noting that I do also have a regular saver and will be filling that to its limit from my other savings as a priority, as its interest rate can't currently be beaten except with a fix or a current account that demands minimum monthly income. Also, I'm very sure I won't have any temptation problems with the borrowed money, as much as that's definitely a valid concern - I have a high student loan and am determined to live within those means, and I haven't so far been tempted by the savings my parents have transferred into my name for me to invest.

Interesting to see the difference of opinion on the effect of fully using an arranged overdraft on a credit score/overdraft extension. Might see if Google reveals any expert consensus on that. Both answers certainly seem to make sense but can't both be right!

I'll definitely look into the possibility of multiple student accounts, which might make this more worthwhile. I vaguely remember having read something about not being able to do that with the Nationwide one, but I'll have to dive into the T&Cs.

Edit: As I suspected, Nationwide don't let you have another student account at the same time, which is disappointing (and maybe an anti-stoozing effort?).

Edit2: Actually, they only say you can't already have a student account when you open it and Santander, among others, doesn't seem to have any such restriction. Might just open the Nationwide one first and give the multiple account thing a try, subject to talking about it in branch or on the phone.

Novice_investor101

I did similar when I was a student - in 2004 to 2006. Interest rates were much higher then. I remember going into NatWest & asking if I could transfer my whole £2k interest free overdraft into my NatWest ISA & they said it was fine, so I did.

I then spent a while working the odd overtime shift here & there at my weekend job until it was paid back, & then did it again.
By the time I'd finished uni I'd managed to save about £7k from the overdraft & overtime & had no debts. Somehow, I was a lot more determined at paying odebt than accumulating savings so it worked for me.

Nowadays I'm better at saving/investing & don't have any debt other than a mortgage & credit cards that get paid off in full each month.

If you're disciplined, it can work.

Jami74

I transferred as much as I could into my savings account and lived out of my student overdraft. It didn't make much money but it was pleasing to see a few free pence drop into the account every month. It was easy access and I had notifications set up on the student account so could transfer money back if I needed to.

seatbeltnoob

I did this without realising when I was in uni. I put my overdraft money into ING direct, they were paying a whopping 5% on instant access!


Well, I got several letters, 2 months apart, obviously sent from an automated system saying that overdraft is for occasional use and not designed as long term credit and asked me to return the money back to the account.



Stoozing looks bad on credit reports. You max out cards at 90% paying off the minimum amounts each month. It looks like you are struggling with debt and someone living beyond their means. You might need credit to help you through student and graduate life, I suggest not doing this and get a part time job if you want to make some money on the side.


beign a student you're going to be living on very low income, occasionally need to borrow money. Stoozing is for people who are generally averse to debt and dont have any need to borrow money from the bank for the foreseeable future.