Does Overdraft Affect Credit Score? UK Guide

Overdrafts in plain English: arranged vs unarranged

An overdraft is borrowing on your current account. If you go below zero, you are effectively using credit.

• Arranged overdraft: you and your bank agree a limit in advance. You can dip into it up to that amount.
• Unarranged overdraft: you go below zero without an agreed limit, or you go beyond the arranged limit.

MoneyHelper has a clear overview of how overdrafts work, including arranged and unarranged use: overdrafts explained.

How an overdraft can show up on your credit report

Current accounts don’t all report in exactly the same way, but overdrafts are commonly treated as a credit facility attached to the account. That means the account can contribute information such as:

• Whether the overdraft is arranged and the size of the limit
• Whether you are using it (and how consistently you are in it)
• Any missed payments or arrears if the account becomes problematic
• Any default or debt collection activity in more serious cases

Focus on the report line items, not just the score. If you want a quick primer on how UK scores work across the agencies, our guide Average Credit Score UK explains ranges and why the number varies.

MoneyHelper’s guide to credit scores and reports is also a strong baseline: credit scores and credit reports.

What actually hurts your credit score with overdrafts (most of the time)

If an overdraft affects your credit score, it is usually because it creates a pattern that looks hard to manage. Common triggers include:

1) Being in your overdraft most days

Regularly living in the overdraft can be a sign that your monthly income and outgoings are too tight. Even if you “clear it” on payday, a consistent pattern can still make lenders pause.

2) Being at or near the limit

This is similar to high credit card utilisation. If you’re repeatedly using most of the limit, it can look like you don’t have much breathing space.

3) Going beyond your arranged limit (unarranged overdraft)

Unarranged use can mean fees or higher charges, and it increases the chance something bounces or becomes overdue. That’s where credit file damage can start.

4) Missed payments triggered by the overdraft

Even if the overdraft itself is the issue, the damage often comes from a knock-on effect: a direct debit fails, a bill is marked late, or an account slips into arrears.

A quick note on overdraft costs (why small slips get expensive)

UK overdraft pricing changed in 2020. One big aim was to make charges clearer and reduce the sharp cost jump for unarranged overdrafts. The Financial Conduct Authority (FCA) set new rules so providers generally charge a single interest rate for arranged and unarranged overdrafts (with limited exceptions), rather than fixed daily fees and different “tiers” for many customers.

If you want the primary source, the FCA summarises the overdraft reforms here: overdraft users set to benefit from FCA reforms.

Cost isn’t the same as credit scoring, but expensive overdraft use can create a cycle where you’re more likely to miss something else. That’s why it’s worth noticing early.

Calm fixes that usually help (without extreme budgeting)

You don’t need a perfect spreadsheet. The goal is to reduce “surprises” and give yourself a little buffer so the overdraft becomes an option, not the default.

1) Choose one buffer number

Pick a minimum balance you want to stay above (for example £50 or £100). It’s not a moral target. It’s a practical guardrail.

2) Make payday do two jobs

On payday, clear the overdraft and immediately set aside the buffer (even if it’s small). If you wait “until later in the month”, later rarely comes.

3) Move the risky direct debits

If your rent, mobile, or subscriptions come out just before payday, that’s where overdrafts appear. Many providers let you change the payment date. If you want a quick sweep of recurring costs, our Subscriptions guides are a practical place to start.

4) Treat unarranged overdraft as the red line

If there’s one rule to protect your credit file, it’s this: avoid going beyond the agreed limit. If you’re close, ask your bank about options (a temporary limit change, a repayment plan, or fee support depending on your situation).

If you’re applying for a mortgage soon

If a mortgage or car finance application is on the horizon, lenders will look at both your credit file and affordability. You can’t “hack” this in a week, but you can reduce red flags.

• Keep balances steady where possible (avoid frequent dips into unarranged overdraft).
• Reduce application noise (don’t stack new credit applications).
• Fix errors first, because they can take time to resolve.

If your score recently dropped for other reasons, our guide Why Has My Credit Score Gone Down? helps you narrow it down quickly.