I know I have made use of my overdraft facility with my bank on more than one occasion. It’s been there to help when a payment is due but money is not coming into the account for a day or two after. It’s been there for emergencies (which ideally it should never be used for) and it’s been a bit of a crutch in general.
The overdraft is given so freely that it’s not normal to think about what issues it could cause to use the temporary debt so easily provided to us. So how do they affect our credit? Is it positive or negative?
So how do overdrafts affect credit?
This is just opinion but here is what I think from my experiences!
If you have an arranged overdraft with your bank and you regularly go in to this within the arranged amount and then immediately pay it off it may actually help your credit. At least the internal bank credit. They will see you as a regular borrower and timely person to pay that debt off and you may get a barrage of loan and credit offers from them. Of course the temptation to get more credit is not often a good things so be weary of this.
If you go into overdraft in an un-arranged capacity then you are probably ok as long as you pay off quickly. However I am sure repeated violations of this will eventually get bad marks put against your credit score so should be avoided in all circumstances when at all possible.
Personally I will not be using my overdraft anymore if I can help it. I am also no longer worried about my credit score. This gives me a great feeling of freedom. You can read more in my Pledge to Never Take Credit Again.
What do you think and know about how overdrafts affect your credit score?