Does having an overdraft affect your credit score?
An overdraft can be useful when dealing with unexpected costs, but it’s important to know how it can impact your credit score. Whether you’re using an authorised overdraft or accidentally dipping into an unauthorised one, understanding the implications is key to maintaining a healthy credit profile.
What’s an overdraft?
An overdraft gives you the flexibility to spend more money than you currently hold in your bank account. Think of it like a form of short-term borrowing from your bank. For example, if you have £50 in your account and an unexpected bill of £75 arrives, an overdraft could allow you to still make the payment, taking your balance to -£25. Overdrafts generally fall into two categories, each with its own set of rules and potential consequences:
Authorised overdraft: this is an amount pre-approved by your bank, with set conditions and charges.
Unauthorised overdraft: if you go over your agreed limit without permission, you can be charged higher fees and penalties.
Does an overdraft affect your credit score?
Having an overdraft is unlikely to impact your credit score, but how you use it can. Watch out for things like:
Spending over your agreed limit: dipping into an unauthorised overdraft can negatively affect your credit score because it can suggest you rely on borrowing.
Falling behind on repayments: overdue repayments or fees from unauthorised overdrafts can also have a negative impact.
Tips for managing your overdraft
To make sure your overdraft doesn’t negatively impact your credit score, try keeping these tips in mind:
Set limits: know your overdraft limit and stick to it.
Keep an eye on fees: beware of interest rates and charges related to both authorised and unauthorised overdrafts.
Budget for repayments: regularly clear your overdraft to avoid debt and potential fees.
Consider alternatives: if you’re regularly relying on your overdraft, tools like Monzo Flex might provide a more structured and manageable credit solution. (Monzo Flex 29% APR Representative (variable), 18+, credit subject to status)
Learn more about Monzo Overdrafts and unarranged overdrafts.
How does our overdraft compare?
19%, 29% or 39% EAR (variable)
Overdrafts are a form of credit. As a representative example, if you use an arranged overdraft of £1,200 for 30 days, with 39.0% EAR/APR (variable), it would cost you £32.94. 39% APR representative (variable).
Your exact rate will depend on your credit score, and you can see what rate you’re on in the Monzo app.
UK residents. 18+ only. Eligibility criteria and Ts&Cs apply.
Using Flex responsibly by paying on time and staying within your limit could help build your credit score over time, as we report to credit reference agencies. If you do not keep the repayments this may negatively impact your credit score.
Representative example: (Monzo Flex) 29% APR representative (variable). £1200 credit limit. 29% yearly interest (variable).
You’ll need a Monzo current account to apply for Flex Build. Eligibility criteria and Ts&Cs apply. UK residents & 18+ years olds only. Missed payments may negatively impact credit scores.
To open Flex Build, you may need to put down a one-time security deposit depending on your credit history.
Representative example: (Monzo Flex Build) 39% APR representative (variable). £350 credit limit. 39% yearly interest (variable).