Does Increasing Overdraft Affect Credit Score

Learn how increasing your overdraft can affect your credit score in the UK, and how to manage it to avoid harming your credit file

Does Increasing Overdraft Affect Credit Score

An overdraft can be a helpful tool for managing short-term cash flow, especially when used sparingly and repaid quickly. But if you’re considering increasing your overdraft limit, you might wonder what effect this could have on your credit score. So, does increasing your overdraft affect your credit score?

The short answer is yes, increasing your overdraft can affect your credit score, but how it affects you depends on several factors, including whether the request triggers a credit check, how you use the overdraft, and whether you repay it on time.

In this article, we’ll explain how overdrafts work, what happens when you request an increase, and how to manage your overdraft responsibly to protect or improve your credit score.

How Overdrafts Work

An overdraft is a form of borrowing that allows you to spend more money than you have in your current account, up to an agreed limit. In the UK, there are two types of overdrafts:

  • Arranged overdraft: An agreed limit between you and your bank

  • Unarranged overdraft: Spending beyond your arranged limit, usually incurring higher charges and fees

Your bank may report your overdraft details to credit reference agencies such as Experian, Equifax and TransUnion, including:

  • Your arranged limit

  • The amount you have used

  • Any missed or late repayments

  • Whether you stay within your agreed limit

What Happens When You Increase Your Overdraft

When you request to increase your overdraft, your bank may:

  • Perform a hard credit check

  • Assess your affordability and current financial behaviour

  • Update your credit report with your new overdraft limit

Not all banks will carry out a hard search, but if they do, it may cause a small, temporary dip in your credit score. Hard searches remain visible on your credit file for 12 months and can slightly reduce your score, especially if you've made multiple credit applications in a short period.

How Increasing Your Overdraft Can Affect Your Credit Score

1. Positive impact if used responsibly

If you increase your overdraft but only use a small portion of it — or avoid using it at all — it can improve your credit utilisation ratio. Just like with credit cards, using less of your available limit shows that you are not reliant on borrowing, which may help boost your score.

2. Negative impact if you frequently use or max it out

Regularly using your overdraft, especially close to or at your limit, can signal financial stress to lenders. High utilisation of your overdraft facility may be recorded on your credit file and reduce your score.

3. Risk of missed payments

If you exceed your overdraft limit or fail to repay fees, your account may go into arrears. This could result in negative markers such as missed payments, which will damage your credit score and stay on your report for up to six years.

4. Multiple overdraft increases in a short time

Requesting overdraft increases too often may result in several hard credit checks. This could make you appear financially unstable and reduce your chances of approval for other credit products.

Real-World Example

Olivia increased her overdraft limit from £500 to £1,000 after her income became more stable. Her bank carried out a soft search, and the new limit was added to her credit report. She rarely used the overdraft and kept her balance above zero most of the time. As a result, her credit score remained steady and eventually improved slightly.

By contrast, Aaron increased his overdraft to £1,500 and began using most of it every month. His account often sat in overdraft for weeks at a time. This pattern was visible to lenders, and his credit score dropped due to high credit utilisation and perceived financial strain.

Tips for Managing Your Overdraft to Protect Your Credit Score

  • Only increase your overdraft if necessary and avoid relying on it regularly

  • Stay within your arranged limit to avoid penalty fees and negative marks

  • Repay your overdraft quickly, especially if it’s used for one-off or emergency expenses

  • Monitor your usage and balance regularly through online banking apps

  • Set alerts or limits to avoid unintentional overspending

  • Avoid requesting multiple limit increases in a short period

Will Lenders See My Overdraft

Yes. When you apply for credit, lenders can see:

  • Whether you have an arranged overdraft

  • How much of it you use

  • Whether you regularly go into unarranged overdraft

  • Any adverse account activity related to overdraft use

While having an overdraft does not harm your score in itself, using it heavily or irresponsibly can signal financial stress and make lenders more cautious.

Final Thought

Increasing your overdraft can affect your credit score both positively and negatively. If you use it wisely, stay within your limit, and repay promptly, it can help you build a healthy credit profile. However, regular or excessive use may reduce your score and hurt your chances of accessing affordable credit in the future.

Before increasing your overdraft, consider whether it’s necessary and how you plan to manage it. Used correctly, an overdraft can offer flexibility without damaging your financial reputation.