Does an Overdraft Hurt Your Credit Score? What UK Borrowers Need to Know
Published 9th of September 2012·Updated 7 April 2026
Reviewed by: Reviewed for accuracy April 2026
An arranged overdraft, used sensibly, will not hurt your credit score. Used irresponsibly - by regularly maxing it out or going into an unarranged overdraft - it can do real damage. The distinction between arranged and unarranged overdraft use is the key factor lenders look at.
Short Summary
An arranged overdraft is a form of credit. Using it occasionally and keeping well within the limit signals to lenders that you can manage borrowed money responsibly, which can improve your credit score over time.
Staying permanently at or near your overdraft limit tells lenders you are relying on it to get through each month, which is a warning sign. It will not necessarily lower your numerical score, but it can make lenders reluctant to approve further credit.
An unarranged overdraft - where you spend more than you have without prior agreement with your bank - is treated as a missed payment and will damage your credit score directly.
Does a regular overdraft affect your credit score?
A formal, arranged overdraft from your bank appears on your credit file as an available credit facility. Using it occasionally and paying it back shows you can manage credit, which is a positive signal to lenders.
The problem arises if you are consistently at the maximum of your overdraft. Lenders reviewing your application can see your bank account statements and will notice if you are relying on borrowed money every month. This can suggest financial stress, even if your formal credit score number looks acceptable.
What is an unarranged overdraft and why is it harmful?
An unarranged overdraft occurs when you make a payment that takes your account below zero without your bank's prior agreement. Your bank may still honour the payment, but they will charge you for it and report the incident to the credit reference agencies.
From a credit scoring perspective, an unarranged overdraft is treated similarly to a missed payment. According to Experian, unarranged overdraft use is one of the factors that can reduce your credit score. If this happens repeatedly, the damage compounds over time.
Can an overdraft affect your ability to borrow?
Yes, even if your credit score itself remains healthy. When you apply for a loan or mortgage, the lender will ask to see recent bank statements, typically covering the last three to six months. If those statements show you regularly spending in your overdraft or close to your limit, the lender may conclude you cannot comfortably afford additional repayments.
High-street lenders including Barclays, Lloyds, and NatWest all factor in your existing credit commitments - including overdrafts - when calculating affordability. A large arranged overdraft, even if unused, is counted as available debt and may reduce the amount they are willing to lend.
How lenders view your overdraft usage
| Overdraft behaviour | Impact on credit score | Impact on loan/mortgage applications |
|---|---|---|
| Rarely used, paid off quickly | Positive | Neutral to positive |
| Used regularly, well within limit | Neutral | Neutral |
| Consistently near the limit | Neutral to negative | Negative (affordability concern) |
| Exceeding limit with bank's permission | Negative | Negative |
| Unarranged overdraft | Negative | Significantly negative |
How to manage an overdraft without damaging your credit
Set up a buffer in your current account so you do not accidentally slip into unarranged territory. Many banks, including Monzo and Starling, send real-time alerts when your balance drops below a threshold you set.
If you are regularly relying on your overdraft, consider whether it is serving a genuine purpose or masking a budget shortfall. Using your overdraft as a permanent extension of your income can lead to a cycle that is hard to break and that lenders will notice.
FAQ
Will having an overdraft lower my credit score?
Not automatically. An arranged overdraft used occasionally and kept well below the limit can actually support a healthy credit history. Only unarranged overdraft use or consistently maxing out your limit is likely to harm your score.
Does applying for an overdraft affect my credit score?
Yes. When you apply for an arranged overdraft, your bank will usually run a hard credit search, which appears on your credit file. This has a small, temporary effect on your score. If you are only managing an existing overdraft, no new search is triggered.
Can I get a mortgage if I use my overdraft every month?
You can, but it may reduce the amount you are offered. Mortgage lenders review three to six months of bank statements as part of affordability checks. Regular overdraft use suggests a thin financial cushion, which can lead lenders to reduce the loan size or ask for explanations.
How long does an unarranged overdraft stay on my credit file?
Negative marks from unarranged overdraft use stay on your credit file for six years, just like other missed or late payments. However, the impact diminishes over time as you build a more recent positive payment history.
Does closing an overdraft help my credit score?
Closing an overdraft you do not use removes an available credit facility from your file. This can slightly reduce your overall available credit, but the practical effect on your score is usually minor. If the overdraft was causing you to overspend, closing it makes clear financial sense regardless of the credit score impact.