How To Get An Overdraft Approved With Bad Credit

How to get an overdraft with bad credit

Most of us have heard of an overdraft and many of us will have made use of one in the past. Typically, consumers dip into an overdraft for a matter of days, if not hours, so it is easy to forget they are a recognised form of credit that could be affected by your credit score. Frequent use of an overdraft could also have a negative impact on your credit history so it’s important to understand how they work. 

If you have a bad credit score and you are considered by your bank to be an unreliable borrower, you might find they will not want to offer you an overdraft. While this may not affect you if you are able to cover your emergency costs using savings or your income, it does remove the possibility of using this handy buffer if unplanned funds leave your current account.

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We have explored some of the ways you can get an overdraft with a bad credit history, as well as what you can do to improve your chances of having an overdraft application approved if you apply in the future.

Your questions, answered

An overdraft is a form of credit that linked to your current account. With an overdraft in place, you can withdraw money or pay bills even if you have emptied your account of its funds. There are two types of overdraft: authorised and unauthorised. An unauthorised overdraft is a facility that your bank might let you use if you run out of money in your account, but this is a very expensive form of credit that typically cannot be sustained for more than a couple of days. Alternatively, you can apply for an authorised overdraft, which you have applied for and has been authorised by your bank. While either can affect your credit score, an authorised overdraft will often have much more favourable interest rates and is used by some as a means of covering emergency costs and unplanned expenses.

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.  

If you have been unable to secure an authorised overdraft with your bank, it might feel like a significant blow, but it doesn’t have to be the end of the road. You can still consider making use of an unauthorised overdraft should your finances require it, but many people choose to avoid this option due to the large interest rates you will face if you go overdrawn.

If you don’t feel an unauthorised overdraft is right for you, there are actions you can take to improve your credit report and increase your chances of securing an overdraft in the future. 

Positive steps you can take to improve your credit score include: 

  • Avoid making multiple applications: Like any form of credit, overdraft applications often require a credit check. If you are rejected for an overdraft but apply again, credit agencies may consider you financially unstable and desperate for cash, which is likely to lower your credit score.
  • Close unused credit accounts: Having access to a large amount of credit, even if you are currently not using it, can make you appear to be a high-risk borrower. While it is positive to have unused credit, it is best to reduce your number of accounts to just one or two, so you have a smaller total amount of credit available to you.
  • Build your credit history: While this is a long-term plan, building your credit history by consistently paying utility bills and paying off any credit cards in full each month will help build your image as a trustworthy borrower. If you don’t feel you can pay off your credit cards in full, make sure all your repayments meet the minimum required amount, so you do not incur penalty charges. 
  • Avoid your unauthorised overdraft: Regular use of your unauthorised overdraft will reflect badly on you and could lower your credit score. Where possible, completely avoid going overdrawn. If you are worried that you might need additional cash, consider alternative options, such as credit cards or borrowing from friends or relatives.
  • Live within your means: While you are in the process of seeking an overdraft, it is important to demonstrate to your bank that you are living within your means and unlikely to require additional credit. Try to identify any costs that you could cut and avoid making unnecessary purchases while you are in the process of seeking additional credit.
  • Register on the electoral roll: Registering on the electoral roll is an easy way to provide your bank with confirmation of your identity. Registration can also improve your overall credit score and increase your chance of being approved for credit at a later date. 

At The Money Shop, we are committed to providing you with detailed information on all aspects of lending and borrowing. We have created a series of in-depth guides designed to provide expert advice on many of the most common topics and questions related to borrowing money. Click on the links below to find out more about the different lending options we offer or find out the answers to some of the most common questions asked by our borrowers.