Does your overdraft affect your credit score?

An overdraft is a credit/borrowing facility, which allows you to use your current account to make payments or withdraw cash even when your balance falls below zero. 

There are two types of overdrafts:

• arranged – an overdraft that’s been agreed with your bank up to a certain limit
• unarranged – this is when the balance on your current account falls below £0 without an arranged overdraft in place, or when your balance falls below your agreed overdraft limit

Getting to know the difference between the two types of overdrafts can help you understand how each one can affect your credit score.

Find out more about how overdrafts work.

Applying for an overdraft can affect your credit score, in either a positive or negative way.

If you don't have much credit history, maintaining an overdraft could help to improve your credit score. 

But applying for credit too frequently in a short space of time could have a negative effect on your credit score.

It’s unlikely that using your arranged overdraft will hurt your credit score.

Using it sensibly, not going over your arranged overdraft limit, and paying it back regularly could actually have a positive impact on your score.

It could show lenders that you’re good at managing your money.

Spending more than your agreed overdraft limit, or letting your balance go below zero when you don’t have an arranged overdraft, can signal to lenders that you’re struggling to stay on top of your money, particularly if it happens frequently. 

When increasing your overdraft limit, a lender may do a hard credit search on your credit file, which could affect your credit score.

If you’re approved for an increase to your arranged overdraft limit, your new overdraft limit will be recorded on your credit file.

Using your arranged overdraft sensibly can have a positive impact on your credit score.

Just make sure you:

• stay within your arranged overdraft limit
• avoid going over your arranged overdraft limit (into your unarranged overdraft)
• pay off your arranged overdraft regularly

Read our tips on how you can get out of your overdraft.

If you’re with first direct and you’re struggling to get out of your unarranged overdraft, let us know. We have a dedicated Financial Support team, who are here to help.

If you're new to first direct, you'll need to open a current account to make use of our overdraft services. 

You can use our eligibility check to see how likely you are to be approved for a certain overdraft, and our overdraft calculator can help you to see how much it could cost to use. 

If you already have a first direct account and you'd like to discuss the terms of your overdraft facility, give us a call on 03456 100 112.