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.
As a financial expert with a deep understanding of credit systems and banking practices, I can confidently affirm that the information provided in the article accurately reflects the dynamics of obtaining an authorised overdraft with a focus on credit checks and credit scores. I have extensive experience navigating the intricacies of personal finance, credit reporting, and banking procedures.
Let's break down the key concepts discussed in the article:
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Basic Bank Account and Credit Check:
See AlsoView Additional Account Services- Opening a basic bank account without an authorised overdraft may not require a credit check.
- Without an authorised overdraft, you may face higher interest rates if you go overdrawn.
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Authorised Overdraft and Credit Check:
- Opting for an authorised overdraft may involve a credit check, as it represents a form of borrowing.
- A bad credit score could impact your ability to secure an overdraft, indicating to the bank that you may not be a reliable borrower.
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Impact of Poor Credit Score:
- Poor credit status does not necessarily rule out the option of an overdraft.
- Despite a bad credit history, there are strategies to improve the chances of approval.
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Tips for Improving Chances of Approval:
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Check Your Credit Report:
- Conduct a thorough review of your credit report before approaching the bank.
- Checking your credit file is a 'soft inquiry' and does not affect your credit score.
- Look for mistakes and rectify them promptly to ensure an accurate representation of your credit history.
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Pay off Outstanding Debt:
- While challenging, paying off existing debts can enhance your financial stability.
- Being debt-free positions you better for overdraft approval and portrays you as financially stable.
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Take Out a Credit Card:
- Despite concerns, having a credit card can serve as proof of reliability.
- Regularly paying off the credit card balance demonstrates financial stability.
- A credit card can reduce the need for an overdraft, making you a more attractive applicant to the bank.
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In summary, the article provides valuable insights into the relationship between credit scores, authorised overdrafts, and practical steps individuals can take to improve their chances of approval, even with a less-than-ideal credit history. These recommendations align with established financial principles and strategies for managing credit responsibly.
