What is an...

Overdraft

An overdraft is an agreement by your bank for you to take more money from your current account than you have in it. It is repayable ‘on-demand’. An overdraft occurs when withdrawals from a bank account exceed the available credit balance which gives the account a negative balance - a person can be said to have gone "overdrawn".

Banks in the UK often offer a basic overdraft facility, subject to a pre-arranged limit known as an authorised overdraft limit. However, whether this is offered free of interest, subject to an average monthly balance figure or at the bank’s overdraft lending rate varies from bank to bank and may differ according to the account product held.

When a customer exceeds their authorised overdraft limit, they go into unauthorised overdraft. As of April 2020, all overdrafts, whether authorised or unauthorised will be charged a single annual interest rate (APR).

Will my overdraft show on my Credit Report?

Because an overdraft is a form of debt, it is likely to show as a credit facility on your Credit Report. Where reported, it will show the balance, limit and if applicable, any late payments that have occurred on the account.

The exact way an overdraft is reported can vary, and often depends on how you use it.

You can check whether you have an overdraft listed on your own Credit Report by seeing what is being reported by each of the UKs Credit Reference Agencies. The quickest and easiest way of doing that is to use checkmyfile. You’ll see data from Equifax, Experian, TransUnion and Crediva, all in the same place and in the same format. It’s free for 30 days, then just £14.99 a month and you can cancel easily online at any time.

Can an overdraft affect my Credit Score?

Using an overdraft as it’s intended – as a short term form of borrowing – shouldn’t hurt your creditworthiness. If you regularly exceed your overdraft limit though, a lender could pursue the debt and it’s possible for late payment markers or even a default notice to be lodged against you.

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