According to Finder, as of 2020, 26 million Brits use an overdraft every year. The same report showed nearly 9 million Brits are potentially being charged fees for their overdraft that they don’t understand or know about. Here is a guide answering all your questions on how overdrafts work.

Overdrafts are an extension of credit on your current account. You can go into an overdraft when you withdraw  more cash than is in your account or if an online transaction is processed that takes your balance below zero. An overdraft lets you take out more money than you actually have in your bank account. At this point your bank account is ‘overdrawn’. 

Different banks have different charges associated with an overdraft. Your bank will charge interest on the amount you withdraw. Your bank may also charge you for fees associated with going into your overdraft. You can get an overdraft at most high-street names such as Barclays, Lloyds, and  The Royal Bank of Scotland. 

Is an overdraft the same as a loan?

There are some differences between an overdraft and a loan. An overdraft is an amount that you have agreed you can borrow from your bank. This amount has a set limit but you do not have to withdraw the full amount. 

A loan means you borrow a fixed amount over a fixed period of time and have regular repayments. Loans are less flexible than overdrafts, but for larger amounts loans tend to have lower interest rates. 

Can anyone get an overdraft?

To get an overdraft you have to have a current account with the bank you are trying to get an overdraft from. Most banks will offer this service but the limit you are given may vary. Your bank will usually decide on your overdraft limit based on your credit history. 

If you want a larger overdraft limit, you may want to improve your credit score. Find out more about building up your credit score in our guide to building credit the right way, and Portify’s credit building app here. 

How do I get an overdraft?

Some overdrafts are given automatically. They are attached to your current account. If this is not the case, you can ask your bank for an overdraft. Some banks such as Lloyds bank let you apply for overdrafts online through the banking app. The Barclays app not only lets you apply for an overdraft but you can increase your overdraft limit within the Barclays app. 

What is a good overdraft?

There are two types of overdraft; Authorised and unauthorised. 

An authorised overdraft is an overdraft you have agreed on in advance. You and your bank agreed on an interest rate and any other additional charges.

An unauthorised overdraft is an overdraft that you haven’t planned for. This happens when you spend more money than you have in your account by accident. Going over your authorised overdraft limit also takes you into an unauthorised overdraft. An unauthorised overdraft has no agreed upon fees and charges. 

Is an overdraft good for your credit score?

The impact of an overdraft on your credit score depends on the type of overdraft you have. If you have an authorised overdraft then it is unlikely to have a major impact on your credit score. However, if you go over your authorised overdraft limit and have penalties or late fees, this can have a negative impact on your credit score. 

If you have an authorised overdraft, and make regular repayments, it may not appear on your credit report, or it may actually improve it. As an overdraft is a form of debt, regular and on-time repayments can prove creditworthiness and improve your credit score.

Will my overdraft show on my credit report?

If you have an unauthorised overdraft, it will show up in your credit report as a debt. If you have an authorised overdraft but you pay this off before the end of the month it may not show up on your credit report. As banks report data once a month, if you dip into your overdraft but pay it off quickly it may not show up on your report.

Is it good to have an overdraft?

An overdraft is useful to cover unexpected shortfalls. Using an overdraft with a large limit over an extended period can incur high fees. Overdrafts can also help you avoid fees for returned payments or payments that have ‘bounced’. Overdrafts should only be used in the short term. If you require a longer term solution you should look into a loan. 

How to get an overdraft with bad credit

If you have bad credit, or if you have no credit history in the UK at all, banks may be unwilling to offer you an overdraft. However, if you are looking for an overdraft with bad credit there are a few things you can do. 

You can:

  • Ask for a low overdraft limit to prove creditworthiness
  • Speak to your bank or building society about any other options they may have
  • Shop around and see if there are any banks offering introductory offers for new account holders
  • Improve your credit score 
  • Use an alternative short-term lender

Banks with overdrafts for people with bad credit

There are few banks that will offer overdrafts to those with bad credit. Banks usually reserve overdrafts for customers with good credit, as they can be assured they will get their money back. However, you can try the tips above and speak to various banks about an overdraft. 

Alternative solutions involve improving your credit score, or using an alternative lender.

Portify: Build Healthy Credit

If you are looking for more ways to improve your credit score to get an overdraft look into using a credit building service like Portify. If you are new to the UK, have previous financial difficulties or, have a bad credit score, Portify can help. Portify offers a simple and easy way to build your credit score with Experian, Equifax and TransUnion. Join a community of 100,000+ members who have seen their scores improve by up to 100 points in just three months. We work with all major UK Credit Reference Agencies to build your credit score.


Lauren Robson is the digital communications manager at Portify.
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