If you choose to open a basic bank account without an authorised overdraft, your bank may not require you to undergo a credit check. However, this will mean you will face higher interest rates if you go overdrawn. Should you choose to have an authorised overdraft included with your bank account, they will likely perform a credit check as you will potentially be entering into a form of borrowing. Unfortunately, a bad credit score could affect your ability to secure an overdraft as it may suggest to your bank that you are not a reliable borrower. But a poor credit status does not have to mean an overdraft is no longer an option.
Thankfully, even with a poor credit history, you still have a chance of being approved by your bank. Here are our top tips to improving your chances of securing an authorised overdraft with a bad credit score.
1. Look carefully at your credit report
Before speaking to your bank about getting an authorised overdraft to your current account, take a thorough look at your credit report. Checking your credit file is considered a ‘soft inquiry’ and will not affect your credit score so, you will have the chance to make sure there are no mistakes in your credit history without fear of lowering your score in the process. You can check your score for free by contacting a credit reference agency but remember that each agency will have a different version of your history, so it is worth completing multiple checks. If you find any mistakes in your file, contact the agency or lender immediately to have them rectified or add a note to the item in question to explain to lenders why it is not representative of your general spending behaviour. Errors can significantly affect your credit score and may prevent you from successfully applying for an authorised overdraft.
2. Pay off your debt
We know paying off debts is much easier said than done, but if you only have a small amount of outstanding debt, it could be beneficial to tackle this before applying for an overdraft. Without any debt, you will be in a better position to seek approval and appear much more financially stable should your bank conduct a credit check. Unfortunately, paying off your debts will not immediately impact your credit score, so if you feel your score is too low to apply for an overdraft. You may need to stay debt-free for several months before you consider submitting your application to your bank.
3. Take out a credit card
If you haven’t already, it could help your chances of getting an overdraft if you take out a credit card. While credit cards are often viewed negatively by those concerned about their credit score, they can act as handy proof of your reliability if you haven’t yet accumulated a large amount of debt. For example, many agencies will assign you a poor credit score if you have little or no credit history. By taking out a credit card and paying off the balance each month, you can demonstrate that you are a reliable and financially stable borrower. In addition, access to a credit card will reduce your chances of needing an overdraft, so you will be a more appealing applicant in the eyes of your bank.