Should I get rid of my overdraft?

MaryLegs_

Hi all! 

Looking for advice as I have read conflicting information:

I’m finally out of my overdraft so should I get rid of it? Am I right in thinking the more credit you have available to you - the more attractive you are to lenders? Should I keep it for this reason. I’ve read on other posts that paying off your overdraft one bit at a time can actually detract from your credit rating so I’d been waiting to either slash it all in one go or leave it and just not use it. 

Thank you in advance!

[Deleted User]

No.  Keep it but don't use it.

PRAISETHESUN

If you're worried about getting into debt again then you should definitely remove it.

If you're restrained enough to not use it and are looking solely to improve your credit history, then there's no harm in keeping it. Higher limits (up to a point) are generally seen positively by lenders as it shows lenders trust you.

As for paying it off, there's no advantage or disadvantage to paying it off in one go or in smaller increments apart from the interest you will be paying. The quicker you pay it off the less interest you'll pay, so paying it off in portions with whatever you have spare is actually the best way to do it.

pinkdalek

Perhaps lower it, you have not said how much it is for.  Definitely avoid using it.  After time if you don't use it your bank may reduce or remove it anyway.  They can do that you know.

Emmia

I'd lower it to a level which you'd have no problem paying off if you went into it, rather than getting rid completely. 

I had a £1500 overdraft (student related) which I cut to £100 once I'd paid it off.

jonesMUFCforever

4 replies all mostly with differing views.
The fact that you have come out of your overdraft (how much money has that saved you per month?) means you have had your light bulb moment.
But life does throw things at us which might need emergency funding - so my advice keep the overdraft (I would go further and set a minimum balance of say £100 as lowest balance) and only use it if it is genuinely the last resort.

The law of sod says if you apply for an overdraft there is a good chance you won't get it - if you don't need it you will get it.

Alex9384

Emmia said:

I'd lower it to a level which you'd have no problem paying off if you went into it, rather than getting rid completely. 
I had a £1500 overdraft (student related) which I cut to £100 once I'd paid it off.

pinkdalek said:

Perhaps lower it, you have not said how much it is for.  Definitely avoid using it.  After time if you don't use it your bank may reduce or remove it anyway.  They can do that you know.

Reducing your overdraft limit may look on your credit files as if your bank didn't trust you any more. When other lenders look at your credit files, they won't see the reason why the limit was reduced (or who iniciated it), so they may assume you've done something that made your bank trust you less than before. I would definitely keep my limit as it is, if not increase it.

I have arranged overdrafts on several current accounts and none of them was ever reduced by any of my banks. The only occassion I ever used an overdraft was, when my standing order was paid out from the account with insufficient funds, which took me into arranged overdraft, but I paid in funds from my other current account on the same day. So basically, I used the OD for a few hours. Since I paid it off on the same day, I didn't pay a penny in interest and it's not recorded on any of my credit files either.
Btw, I'm not sure you can reduce your OD to £100. I think the minimum is £250, but not sure if all banks have same limits.

born_again

I would look at it this way.
There is a limit on the amount banks can charge on unauthorised overdrafts. Compared to the amount of interest they can charge on a authorised one.

mab3000

Btw, I'm not sure you can reduce your OD to £100. I think the minimum is £250, but not sure if all banks have same limits.

I can’t think of a single bank I have been with that sets a minimum overdraft facility of £250. 

Emmia

Alex9384 said:

Emmia said:

I'd lower it to a level which you'd have no problem paying off if you went into it, rather than getting rid completely. 
I had a £1500 overdraft (student related) which I cut to £100 once I'd paid it off.

pinkdalek said:

Perhaps lower it, you have not said how much it is for.  Definitely avoid using it.  After time if you don't use it your bank may reduce or remove it anyway.  They can do that you know.

Btw, I'm not sure you can reduce your OD to £100. I think the minimum is £250, but not sure if all banks have same limits.

I chose to reduce mine with HSBC to £100 and it had almost no effect on my (meaningless) score. The bank was perfectly happy with me having a significantly larger facility - I wasn't asked to reduce it by them.

Alex9384

mab3000 said:

I can’t think of a single bank I have been with that sets a minimum overdraft facility of £250. 

At least these. For some reason I thought there were more banks with this limit.