Does your overdraft affect your credit score?

What is an overdraft?

An overdraft lets you borrow money through your current account, taking your balance below zero. It's a type of revolving credit — you can borrow up to your agreed limit and repay whenever you want, without a fixed repayment schedule.

Some accounts, particularly student accounts, offer a certain level of interest-free overdraft. Beyond that limit, your bank will charge interest on what you borrow.

Authorised vs unauthorised overdrafts

There are two types of overdraft — authorised (also called arranged) and unauthorised (unarranged).

• An authorised overdraft is one you've agreed with your bank in advance, up to a set limit.
• An unauthorised overdraft happens when you spend more than you have in your account without that agreement, or when you go beyond your authorised limit.

Following a rule change in April 2020, banks must now charge the same interest rate for both types of overdraft, making it easier to compare what different accounts actually cost. Overdraft interest rates vary between banks, but most major providers charge between 19% and 40% — so it's worth checking what your bank charges before you dip in.

Will my overdraft show on my credit report?

Yes — your overdraft will appear in the debt section of your credit report. Lenders can see your overdraft limit and how much you're using at the point the information is sent to the credit reference agency.

Simply having an overdraft facility you don't use is unlikely to affect your score — it will show as a balance of zero. Being slightly overdrawn for short periods is also unlikely to cause a significant dip.

That said, banks can ask for an overdraft to be repaid in full at any time. Failing to do so could have a negative impact on your credit score.

Does applying for an overdraft affect your credit score?

Applying for an overdraft won't usually affect your credit score. Your bank will look at your credit history to assess whether you're a reliable borrower, and most do this with a soft credit check — which won't show up on your report when lenders check it.

Some banks do carry out a hard credit check, which will be visible on your report. This won't necessarily damage your score on its own, but multiple hard searches in a short space of time can — as it may suggest to lenders that you're struggling financially.

Does an arranged overdraft affect your credit score?

Using an arranged overdraft responsibly can actually have a positive effect on your credit score. The key is staying within your authorised limit, making regular payments to reduce what you owe, and avoiding an unauthorised overdraft altogether.

Your overdraft also factors into your credit utilisation ratio — the proportion of your total available credit you're currently using. Keeping this below 25–30% signals to lenders that you're in control of your borrowing.

For example, if you had a £1,000 overdraft limit and a £2,000 credit card limit but only owed £600 across both, your credit utilisation ratio would be 20% (£600 out of £3,000). If you only had the credit card, the same £600 balance would push your utilisation to 30% — so having an overdraft you don't use can actually help.

Does an unarranged overdraft affect your credit score?

If you spend beyond your overdraft limit, you move into an unauthorised or unarranged overdraft. Many banks will allow this to happen rather than declining the payment — but it will show on your credit report and is likely to cause your score to fall.

Lenders view unarranged overdraft use as a sign that you're struggling to manage your finances, which can make it harder to be accepted for credit in the future.

Does a student overdraft affect your credit score?

Most student bank accounts include a 0% interest overdraft up to a set limit, which can be a useful buffer while you're studying. If you use it within your limit and pay it down regularly, it can actually help build your credit history.

The same rules apply as for any other overdraft though — going into an unauthorised overdraft will likely cause your score to drop.

Does an overdraft affect a mortgage application?

Around 30% of UK adults go into their overdraft every month — so if you're worried about how this affects a mortgage application, you're not alone. The good news is that occasional, managed overdraft use is very unlikely to prevent you from getting a mortgage. What matters much more is the pattern of use.

Mortgage lenders typically review three to six months of bank statements as part of their affordability assessment. Even if your credit score looks healthy, a pattern of regular or heavy overdraft use could raise concerns about whether you can afford monthly mortgage repayments.

Lenders tend to view overdraft use differently depending on the circumstances:

• Occasional, short-term use — dipping in briefly before payday and clearing it promptly is generally seen as normal account management and is unlikely to cause problems
• Regular reliance on your overdraft — if you're consistently near or at your limit each month, lenders may view this as a sign of financial strain
• Unarranged overdraft use — this is viewed most negatively and can significantly reduce your mortgage options

If you're planning to apply for a mortgage, most mortgage brokers recommend reducing or clearing your overdraft in the six months beforehand where possible.

What should I do if I can't repay my overdraft?

If you're struggling to repay your overdraft, the most important thing is to contact your bank as soon as you can. Banks are often more flexible than people expect — they may offer a repayment plan, a temporary reduction in interest, or more time to pay.

What you shouldn't do is ignore it. Unpaid overdraft debt can quickly build up with interest, and as a last resort, your bank may issue a default notice or close your account — both of which would seriously harm your credit score.

If you need broader support with debt, free and confidential advice is available from StepChange, MoneyHelper, and National Debtline.