Control your overdraft rather than it control you!

An overdraft would have an impact on your credit score as it is a sign of not paying back debt. However, one is significantly more likely to damage your credit score and that is an unauthorised overdraft. Unlike an authorised overdraft, which will not make much change to your credit score as there is an assurance from you that you will repay that overdraft with your bank. An unauthorised overdraft is spending money you don’t have with no agreement on repayment, as a result, this will damage your credit score significantly.

There is no definitive way to get out of an overdraft except to reduce the amount you withdraw from that account and make sure you are gradually paying back the outstanding debt. It is preferable to use credit cards with lower interest rates if you are repaying through credit and ideal to repay your balance through debit as this is your own money you are paying into your overdraft as opposed to further loans.

Banks are not typically allowed to suddenly close an overdraft without notice, however, the main reason as to why a bank may cancel an overdraft would be if you take out more money than you have agreed if you have exceeded your authorised overdraft limit with the bank. This does not mean you are now exempt from repaying the overdraft, they could attempt to claim the necessary funds in other ways through court, close your account with them and do other unfavourable actions that will gravely affect your credit score.

There are no set repayments put in place when you have an authorised overdraft, but this does not mean you can’t create your own reinstallment plan that falls in line with your monthly income, this may help you to steadily pay back your overdraft.  If you are making regular credits to your account, it shows the bank that even though you cannot pay off your overdraft immediately, you still have a regular income to provide the funds necessary to pay into your overdraft.

If you have an arranged overdraft with your bank which is exceeded unexpectedly, the bank will report this to your credit report which in turn will show badly on your credit score. Speak to your bank about this to assure them you can make the necessary repayments and that may lessen the implications but if you go a long period of time with an unauthorised and unpaid overdraft and you may expect your bank to close your account followed and/or a court appeal to pay back the necessary funds.

If you are switching accounts and have an agreed overdraft you have not used, there is a possibility that your new bank may extend the same overdraft facility subject to their terms. If you are paying back an outstanding overdraft, you can still switch accounts but this does not mean you are exempt from repaying your old account’s overdraft. In fact, you may be subject to transfer charges and you will still continue to repay to the previous bank.