Will the overdrafts my bank has approved affect my credit rating?

Question

Does applying for a bank overdraft affect my credit rating? Every month my bank balance is going to be negative, I apply for a £50 to £200 overdraft and then pay it off when I get paid and cancel the overdraft. I don’t always extend it every month but I just wondered if the application itself would affect my credit rating.
The bank always approves my overdraft.

JP/Fareham

Answer

The best way to see if any searches have been recorded by your bank is to check your credit file with a credit reference agency – although be mindful of the fact that different agencies retain this information for different lengths of time.

While a search in itself is not harmful to your creditworthiness, a cluster of searches over a short period of time could give the impression that you are under financial pressure, which may concern a potential lender.

If no searches appear when you check your credit file, then this could mean that your bank sees fit to approve these small ‘buffer zones’ without the need for a full credit check. However, you may want to consider leaving your overdraft in place, even if you are only using it periodically, given how labour intensive it is to open and close it so regularly. You will need to check what the fees will be to work out whether this is worthwhile. Having a regular, modest overdraft is unlikely to make a large difference to your creditworthiness in the eyes of potential lenders.

Denis Hussey works for the National Debtline.

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