Use planned overdraft or close?

zenforza · 19 February 2019 at 11:04PM

I have a planned overdraft limit of £1,000 on a student account (I am still part time though now also in full time employment). I don't use the account, and paid it off as soon as my pay check allowed, and have another current account which I use for my living expenses.

I'm currently in the process of trying build credit. On my credit reports it's listed as a open line of credit with a balance of zero. My question is can I use it effectively like a credit card, or is it better to close it. Initially I was going to do the latter while opening a credit builder card as I'm not interested in having a student account anymore, and I've read that being in your overdraft can reflect negatively.

One plus would be I could use it to pay my rent/bills etc. via direct debits which would account to about 40% of the amount each month (obviously also being paid off in full), which if it can be used as a positive force would be an advantage.

I'm fairly new to this so any pointers would be greatly appreciated.

boo_star · 19 February 2019 at 11:07PM

Get a credit card and put a small balance on that every month.

Regular usage of an overdraft is not viewed in a positive light, although you may get away with it being a student one.

The best advice is if you don't need it, get rid of it.

Ben8282 · 20 February 2019 at 3:09AM

Donut use the overdraft. Don't cancel it. Just keep it unused.

boo_star · 20 February 2019 at 3:45AM

Ben8282 wrote: »

Donut use the overdraft. Don't cancel it. Just keep it unused.

No, get rid of it.

The temptation to use it isn't worth the slight bump to their credit worthiness.

Mjfender26 · 20 February 2019 at 5:05AM

Some planned over drafts aren’t reported, mine for example isn’t noted anywhere against my credit file

SlovakianGuy · 20 February 2019 at 6:35AM

I agree with Ben.
If you keep it open, you will have more credit available to you. If you close that account and get a credit card with, let's say, £1,000 credit limit, then if you pay £400 monthly, your credit utilisation ratio will be 40%.
But if you keep the account with £1,000 overdraft open, and get the credit card with £1,000 credit limit, and spend £400 on it each month, then your credit utilisation ratio will be only 20%, because the total amount of credit available to you will be £2,000 (overdraft + credit card) of which you use £400 (20%).

Also, if it's an old account, it may be a good idea to keep it, as this increases the average age of all your accounts. The older account, the better. Lenders see it as a positive thing because it indicates stability. On the other hand, it's not a huge problem if you close it. If you really don't want to keep it, just close it. You can get an overdraft on some other account later if you want. I personally applied for overdraft even if I don't use it at all. It's just to show lenders that my bank actually trusts me enough to give me that overdraft, and also, to increase the amount of credit available to me.

What bank do you have? Is it visible on all three credit reports (Noddle, ClearScore, Credit Club)?

Craig1981 · 20 February 2019 at 6:55AM

not the best idea to borrow against an overdraft - costs are extortionate and i believe should only be used in an emergency

if you tempted to use it, then cancel it. if you know you will not ever use it, leave it. as already said, using a CC for monthly expenses and paying off in full each month is a good way to build some history

Use planned overdraft or close?

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